US Government’s $1B Bitcoin Transfer Scares Investors; Bitcoin dips
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US authorities transferred $1 billion worth of bitcoin (BTC) recovered from a dark web hack to new wallet addresses, including one owned by Coinbase, on Wednesday, sparking investor fears that intense selling pressure could drive down the token’s price.
Authorities moved bitcoin in three transactions, according to data from blockchain security firm PeckShield. Nearly 10,000 bitcoin were sent to Coinbase-controlled wallets, while approximately $41,000 tokens were sent to government-controlled wallets.
PeckShield published its findings on Twitter early Wednesday, and investors were quick to take notice. In the hours after the report’s release, investors expressed fears that the government would sell the recovered bitcoin on the open market, potentially depressing the price of bitcoin, which has recovered from a two-year low of around $15,500 in November. The concerns sent bitcoin’s price down about 2%, pushing it below $22,000.
An open market sale would be a departure from the authorities’ previous handling of seized digital assets. The state usually sells seized assets at auction. In 2014 and 2015, the government auctioned off bitcoin seized from the owner of the virtual black market platform Silk Road.
While concerns about the sale of tokens on the open market may be overblown, fears that bitcoin prices could take a hit are not entirely unwarranted, said Conor Ryder, a researcher at crypto market research firm Kaiko.
“The move of Silk Road bitcoin to Coinbase is almost certainly done with the intention of selling [the recovered tokens]so one has to wonder if bitcoin is due to any short-term headwinds,” Ryder told CoinDesk.
Whether the market will absorb this pressure is likely to boil down to the composition of the market, says Mark Connors, head of research at 3iq, a digital asset manager. In other words, who are the token holders and how many tokens they hold will greatly influence the extent to which the market reacts to a potential market movement.
The current composition of the bitcoin market may help bitcoin stand up to selling pressure better than it did in the wake of last spring’s Terra crash, according to Connors. That’s because the market has less influence than it did last year. It’s also because the market today is composed of more investors owning wallets with more than $1,000 worth of tokens than it was last year, when the market was flooded with a large amount of crypto-curious investors holding much smaller amounts of bitcoin.
“There should be a quicker return if there is selling pressure, given the greater amount of push [in] market today compared to weaker hands and greater leverage [that characterized the market] a year ago.”
Bitcoin’s price may still move as the government reveals its plans for the newly transferred bitcoin. Many things about the government’s plans for tokens are still unknown. It is still unclear whether the authorities will auction off bitcoin. It is also unclear whether the government will consolidate the assets at some point.
Read more: Dark markets are growing bigger and bolder this year since the Silk Road bust
