The US government is preparing to auction off more than 29,000 bitcoins seized from the Silk Road website when its alleged chief Ross Ulbricht was arrested, in a move that could net it over $17m.

Ulbricht, 30, was arrested in October 2013, charged with running the Silk Road, then the world's biggest online black market. The FBI seized the site's assets, as well as Ulbricht's. The anonymous nature of the Silk Road meant the bulk of those assets were in bitcoin, the cryptocurrency which exists only in digital form.

Ulbricht held 144,000, and the Silk Road another 29,656. Ulbricht's bitcoins remain in the care of the FBI, but a judge signed a forfeiture order on the Silk Road coins - which had no nominated owner, and were judged to be "proceeds of crime". Ulbricht, who has not been tried, contests the forfeiture of the 144,000 bitcoins.

The US Marshals Service is now trying to dispose of the seized Silk Road assets. The organisation has broken them up into blocks of 3,000 bitcoins each, and put out a call to interested parties to register as bidders until Monday 23 June. Registration required, amongst other things, a $200,000 deposit to ensure that bidders were legitimate.

The initial auction, of nine blocks of 3,000 bitcoins - with each block worth about $1.7m at current exchange prices of around $588 - and one of 2,656 bitcoins, worth around $1.5m, will take place on Friday. Bidders need to email in a signed scan of their bid form, between 6am and 6pm, in a blind auction in which bidders don't see rivals' bids, and the government treats the highest submitted price as the prevailing bidder.

Winning bidders will have to pay in cash.

When the FBI seized Ulbricht's bitcoins, in early October 2013, the value of one bitcoin was $127. In the intervening period, the price spiked at almost ten times that, $1155 per coin - leading the Manhattan attorney-general to state the value of the 29,656 bitcoins as $28m in January - but has now settled at around $588.

Even so, the government has still made a "profit" of $13.5m just by holding on to the Silk Road bitcoins for nine months. Were it to sell Ulbricht's personal assets at the same price, that profit would rise to an astonishing $66m.

Owing to the public nature of the bitcoin blockchain, users have been able to keep an eye on the seized money since Ulbricht's arrest, and the news of the upcoming auction was first broken when the two accounts which had held Ulbricht's and the Silk Road's bitcoin were cleared out on Thursday 12. The money can now be found residing in two different wallets – at least until the sale completes.

• Privatise the pound and replace it with bitcoin, says free-market thinktank