Bitcoin Value Dips Before Government Auction to be Held June 27

June 24, 2014 By: Jane Genova

The value of Bitcoin has been plunging since last week.

That’s when the U.S. Marshals Service issued a press release that, on June 27, it was auctioning off the approximately 30,000 bitcoins seized from Silk Road. That was the underground website where drugs, other illegal items such as arms, and services such as murder-for-hire could be bought and sold anonymously using bitcoins.

In October 2013, Silk Road was shut down by United States law enforcement. The 30,000 represent about a quarter of one percent of the coins circulating.

According to CoinDesk, Bitcoin opened at $598.88 on June 23rd. That was down $12.88 from when the market closed. The low for the day was $580.84.

The motivations for the sell-off are diverse, and as history shows, any government action usually causes a shaking of confidence.

Others fear that the next possible step in the process will be auctioning off of Silk Road founder Ross Ulbricht’s private stash of 144,000 coins. That will flood the market, reducing Bitcoin’s value further.

They represent about 1.1 percent of the coins out there. Ulbricht has pleaded not guilty to narcotics trafficking, money laundering and computer hacking.

Those following Bitcoin did not need the official information from the U.S. Marshals Service. Whenever the coins are moved from one wallet or address, they can be tracked publicly.

In preparation for the auction, the government moved a massive sum of bitcoins to two separate wallets. One contains the almost 30,000 Silk Road coins. The other contains the much larger number belonging to Ulbricht. According to his lawyer Joshua Dratel, there has been a stay put on the civil forfeiture of the coins until there is a decision in the criminal case.

Unfortunately for the government and for possible bidders seeking to remain anonymous, a leak occurred. That was when the U.S. Marshals Service sent an email to potential bidders.

The email contained Frequently Asked Questions and Answers, along with an update on the procedures.

Of course, the email list also contained the names of the possible participants. They include Jennifer Jacoby of BigLaw firm Wilmer Cutler Pickering Hale and Dorr, Barry Silbert, head of the online exchange SecondMarket, Jonathan Disner, corporate counsel for DRW Trading Group and Fred Ehrsam, CoinBase’s co-founder. They could be acting for personal gain or on behalf of clients, hoping to buy Bitcoin under $600, with the chance that it will return or exceed its $1,000 high.

The wild card in bitcoin’s future value is how the legal decisions play out against Ulbricht. If he decides to plead guilty or is convicted in a bench trial or by a jury, the stay could be lifted on the federal seizure of his coins. The Bitcoin market could experience a minor earthquake.

After this current auction, attention will shift to Ulbricht’s legal drama.