Bitcoins from Silk Road to be sold in second auction
The U.S. government will auction 50,000 bitcoins as it disposes the virtual currency seized after closing down the illicit Silk Road marketplace last year.
Today's tender is the second sale after the U.S. Marshals Service sold almost 30,000 bitcoins in June, with venture capitalist Tim Draper emerging as the sole winner. After today's auction, the agency will still have more than 94,000 bitcoins, worth about $35 million at current prices, to sell.
The price of bitcoin has declined about 38 percent since the June auction, according to CoinDesk's Bitcoin Price Index, an average of bitcoin prices across leading global exchanges. Still, the drop probably won't deter major bidders, who are bullish on the digital currency in the long term, according to Gil Luria, an analyst at Wedbush Securities Inc.
"I do not expect the difference in price from the last auction to affect the activity -- the major bidders have been involved with bitcoin for a while and do not appear to be concerned about the current price," Luria said. "Even though the market for bitcoin is becoming increasingly liquid with a growing number of venues, the ability to buy big blocks from the government is still an attractive proposition."
The decline in the digital currency's value has been driven by concerns that officials from New York to Australia are considering limiting and regulating bitcoin's use.
The auction today will again include Draper, who is bidding as a part of a syndicate created by a bitcoin startup he backs, called Mirror. Pantera Capital and a syndicate created by the trading division of SecondMarket Inc. also said they plan to participate in the auction. Winklevoss Capital, which makes bitcoin investments, will not participate in the auction, said spokeswoman Christina Mannatt Hirsch.
Bidding Process
Bids for the bitcoins will be accepted online for six hours starting from 8 a.m. in New York. The winner or winners will be notified on Dec. 5, the U.S. Marshals Service said.
"Should be fun," Draper wrote in an e-mail. Draper, who co-founded investment firm Draper Fisher Jurvetson, paid an undisclosed sum in the last auction, which attracted 45 bidders. The bitcoins he bought in June were worth about $19 million based on exchange prices at the time.
Bidders who lost out in the June auction may be willing to offer higher prices this time, Michael Moro, director of SecondMarket's trading division, said in an interview.
"My guess is that we'll have fewer bidders this time around because they know they won't get any bitcoins at a significant discount," Moro said. "What you are left with are the more serious folks."
Silk Road
The auction is part of a cache of bitcoins the FBI transferred to U.S. Marshals after shutting down Silk Road, which the U.S. said was run by Ross William Ulbricht. The marketplace was an online bazaar where anonymous users allegedly bought and sold heroin, LSD, phony passports and computer hacking services.
The auctions represent a rare opportunity to secure a large amount of the virtual currency. Because liquidity on the exchanges is low -- a trade of 500 bitcoins can move prices -- buying from the government offers a chance to avoid paying a premium.
To contact the reporter on this story: Olga Kharif in Portland at okharifbloomberg.net To contact the editors responsible for this story: Sarah Rabil at srabilbloomberg.net; Pui-Wing Tam at ptam13bloomberg.net Reed Stevenson