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The Silk Road Bitcoins Were Auctioned Off, But No One Knows Who Won

Some losers in the US Marshals' auction have come forward, but the winning bidders have kept quiet so far.
Image: Nejron Photo/Shutterstock

Update, 7/7/14, 5:10pm EST: The US Marshals, the body selling off some of Silk Road's bitcoins, has revealed that the auction resulted in “one winning bidder,” according to a statement emailed to Motherboard. “The transfer of the bitcoins to the winner was completed today,” the representative said. That winner, who has not yet revealed their identify, is now the owner of some 29,656.51306529 bitcoins. At current exchange rates, that's worth US$19.18 million.

The hammer has struck, and a section of Silk Road's bitcoins have been sold off. Although we're in the dark about who exactly won the cryptocash that was up for grabs, a number of notable individuals and groups have outed themselves as unfortunate losers of the auction.

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The bidding lasted for 12 hours on 27 June, with nearly 30,000BTC—or around $17.7 million dollars at the time of the announcement—going under the hammer; they were sold in nine blocks of 3,000BTC and one of 2,657BTC.

The bitcoins were seized when the FBI shut down the Silk Road in October 2013, and arrested its alleged owner Ross Ulbricht. Since then, a replacement site has sprung up, and continues to provide over 13,500 listings for drugs.

According to the FBI, the first Silk Road facilitated approximately $1.2 billion worth of trading between February 2011 and July 2013, meaning that its owner would have earned approximately $79.8 million worth of commissions (based on Bitcoin exchange rates at the time). As well as those 30,000BTC sold off, another wallet contains approximately 144,242BTC, the fate of which remains unclear, although Steven Englander, an analyst from Citi, thinks that we may see them up for grabs in the future.

It seems the auction was pretty popular. A list of potential bidders was mistakenly leaked by the US Marshals themselves, including Bitcoin businesses such as Digital BTC, Coinbase, Bitcoins Reserve and Bitcoin Shop, as well as a few individuals. The US Marshals told CoinDesk that 45 registered bidders participated in the auction, with 63 bids being made.

Pantera Capital, one of the larger companies that showed interest in the auction, was outbid. Their chief executive officer Dan Morehead told Reuters that their bid was below the market price.

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"The point is when this auction was announced, Bitcoin was trading at $634 and the general view was that the supply would take the price down," Morehead said. "But ultimately, the supply increased the demand for bitcoins and now the price was higher than when the auction was announced."

It wasn't just companies that got to compete. Over the weekend, Barry Silbert, CEO of SecondMarket and Bitcoin Investment Trust organised a syndicate allowing those with less cash to jump on board. Silbert offered a buy-in price of between $25,000 and $50,000, compared to the US Marshal's entrance fee of $200,000. According to a tweet from Silbert, 42 bidders took part in his syndicate, with 186 received bids. Unfortunately for them, all of their efforts were outbid, according to a later tweet.

Announcement: The SecondMarket / Bitcoin Investment Trust bidding syndicate for the US Marshals bitcoin auction was outbid on all blocks

— Barry Silbert (@barrysilbert) June 30, 2014

Experts have speculated on what effect the auction might ultimately have on the price of Bitcoin, and many echo Morehead's outlook. Jeremy Allaire, head of Circle Internet Financial, who happens to have participated in the auction, told the Wall Street Journal that it could cause a short-term dip in value.

“The government is doing [the auction] in a very controlled manner; they're not flooding the market. They're creating an opportunity for institutional investors, which is a big deal,” he said.

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Englander, the Citi analyst, also thinks the price will decrease. “Normally, we would expect the price to hit bottom around the time of the auction or soon after,” he said.

But in contrast to these predictions, there was a slight jump in Bitcoin's value yesterday. The price of a bitcoin increased by 6.26 percent on a Bulgaria based service, and 5.3 percent on Slovenia-based BitStamp. This means that the US dollar exchange rate has been hovering above the $600 mark.

That might not be solely because of the auction, however, according to the International Business Times. For example, it was recently made legal to buy and sell products with Bitcoin in California, with the California Senate Banking and Financial Institutions Committee passing a new bill with a 7-1 vote on 19 June, and the Assembly floor passing it with 52-11 on 23 June.

This isn't necessarily a step to regulate Bitcoin, something that those who use the cryptocurrency for its libertarian values may fear. Instead, the bill repeals a restriction on the use of anything but the US dollar as currency in California. Nevertheless, it may have something to do with 40 percent of Bitcoin professionals being from the state, according to an analysis by CoinDesk. The change in legislation, as well as the interest in the Silk Road auction, could together have caused the increase in Bitcoin value.

Putting the cryptocurrency's volatile value aside, and irrespective of who actually won the bidding, the auction cements Bitcoin's place as a sought after commodity. Unlike the California ruling, however, it doesn't fully legitimise Bitcoin has a currency.

The Silk Road stash is being sold by the US Marshals in the same way that any type of seized property is done. Any hopes for it to be more widely identified as a currency continue to hinge on further legislation.