June 13 (Bloomberg) -- The U.S. government will start selling one of the largest caches of bitcoins, seized last year from the illicit Silk Road marketplace, triggering a decline in the virtual currency’s price.
A partial auction for 29,656 bitcoins will be held this month, the U.S. Marshals Service said in a statement yesterday. A total of about 144,341 bitcoins, worth about $86 million at current prices, was transferred to the agency from the FBI, the authorities said.
The hoard for sale represents part of the bitcoins seized in October when Silk Road’s operator, Ross William Ulbricht, was arrested and charged with conspiracy to commit computer hacking and conspiracy to launder money. The website was a “sprawling black-market bazaar” used by drug dealers and other vendors to distribute hundreds of kilograms of illegal drugs and launder hundreds of millions of dollars derived from the illicit transactions, the U.S. said.
The value of bitcoins declined 6.7 percent yesterday to $586 apiece, according to the CoinDesk Bitcoin Price Index, which represents an average of bitcoin prices across leading global exchanges.
The auction is scheduled to start on June 27 at 6 a.m. Bidders will have to register in advance, furnish proof of identity and deposit $200,000 in cash with the U.S. Department of Justice. The winner or winners will be announced on June 30.
Linzey Donahue, a spokeswoman for the U.S. Marshals, said the rest of the bitcoins may be sold at a later date.
“Those other bitcoins are in a wallet controlled by the Marshals,” Donahue said. “They are subject to an interlocutory sale order and may be sold pursuant to a court order at a later date.”
Bitcoins, proposed in 2008 by a person or group using the name Satoshi Nakamoto, is a software protocol for issuing and moving money across the Internet. While bitcoins can be used to buy and sell goods and services on the Web and in shops, they’re not in widespread use. By auctioning bitcoins instead of keeping them as digital money, the U.S. government is effectively treating them as a seized asset, such as gold or property.
Bitcoin captured the attention of technologists, investors and governments last year, fueling a rally that drove it to a record of about $1,200 from $12. Scrutiny from regulators, bans in China and India and stumbles by merchants and service providers have fueled volatility and a decline in their value.
The U.S. seized about 173,991 bitcoins during the investigation, according to Manhattan U.S. Attorney Preet Bharara. The amount being prepared for auction corresponds to the number that was recovered from servers used to run the Silk Road site. The rest of the total involved bitcoins stored on computer hardware belonging to Ulbricht. On Jan. 15, the bitcoins recovered from Silk Road servers were ordered forfeited in a civil action filed by the U.S. which seeks all of Silk Road’s assets. Ulbricht has filed a claim asserting ownership of the bitcoins and contesting their forfeiture.
To contact the reporter on this story: Olga Kharif in Portland at email@example.com