Australia to sell £8m of seized bitcoins By Chris Fox

Technology reporter Published duration 30 May 2016

image copyright Reuters

A collection of bitcoins worth about £8m, which had been confiscated by police in Australia, will be auctioned off in June.

The 24,518 bitcoins will be sold mostly in blocks of 2,000 - each with a market value of about £680,000.

Ernst & Young, the firm organising the auction, said the bitcoins had been "confiscated as proceeds of crime" but did not elaborate on the case.

One expert said the authorities had chosen a "safe" time to sell.

Australian newspapers have previously reported that 24,500 bitcoins were seized by police in the state of Victoria in 2013, after a man was arrested for dealing illegal drugs online.

In 2015, Victoria's Asset Confiscation Operations department "confirmed it had recently taken possession of 24,500 coins and would try to make the most of it", according to the Sydney Morning Herald

'Significant amount'

"This is a significant amount of Bitcoin," Dr Garrick Hileman, economic historian at the Cambridge Centre for Alternative Finance, told the BBC. "It's about a week's worth of new Bitcoin that comes onto the market through mining."

Currently about 4,000 new bitcoins are generated a day, as a reward for "miners" who offer their computer power to process Bitcoin transactions.

The seized coins are auctioned in blocks because quickly selling a large number of coins for cash at a Bitcoin exchange could negatively affect the market.

"Generally the view is that any time 10,000 bitcoins sell, the market price can be moved significantly," said Dr Hileman.

The price of Bitcoin rose to $530 (£362) on Friday, its highest level since August 2014.

Dr Hileman said the Australian authorities had chosen a "safe" time to sell because there is some uncertainty about what will happen to the value of Bitcoin in July.

"The Bitcoin protocol is designed to reduce the number of new bitcoins miners are given as a reward for processing transactions every four years.

"The reward will be halved on 14 July, so prices could go up due to the reduced supply of new bitcoins.

"But there is a question about whether security could decline, if rewards for miners are reduced significantly. So it's a safe time to sell, as there is no guarantee about what might happen in July."

'Set a precedent'

The Australian Bitcoin auction, which will be open to bidders worldwide, is the first such sale outside of the US.

In 2014, the US Marshals Service began auctioning a collection of about 175,000 bitcoins that had been confiscated from the founder of internet marketplace Silk Road.

The final auction of those bitcoins attracted 11 bidders, possibly due to the high cost of each block on sale.

Dr Hileman said the sale of Bitcoin by the Australian authorities was an acknowledgement that the cryptocurrency was not illegal.

"Any time a government sells Bitcoin, it is acknowledging that this is a different asset to drugs, for example, that would not be sold in an auction," he told the BBC.

"That was one of the big takeaways from the US Marshal Service auction - they set a precedent that Bitcoin was not illegal.

"Australia has been going through its own regulatory process - and this makes a standing that Bitcoin is legal to use in Australia."