Whether the government sells the recovered bitcoin or not, one thing is certain: the cryptocurrency market remains as unpredictable and exciting as ever.
- The US government recently transferred $1 billion worth of bitcoin recovered from a dark web hack to new wallet addresses, including one owned by Coinbase.
- Investors are concerned that this could lead to intense sell pressures that could drive down bitcoin’s price.
On Wednesday, the United States government transferred $1 billion worth of bitcoin recovered from a dark web hack to new wallet addresses, including one owned by Coinbase. The move stoked investor fears that intense sell pressures could drive down the token’s price, causing bitcoin’s price to dip below $22,000.
Data from blockchain security firm PeckShield shows that about 10,000 bitcoins were transmitted to Coinbase-controlled wallets, while $41,000 worth of tokens were sent to government-controlled wallets. Investors are worried that the government may attempt to devalue bitcoin by selling the confiscated currency on the open market. The government generally sells confiscated property at auction, so an open market sale would be unusual from how authorities have previously handled digital assets.
The Current Composition of the Bitcoin Market
Even while worries about the tokens being sold on the open market could be exaggerated, concerns that bitcoin prices could fall are not wholly unfounded. Almost certainly done to sell [the found tokens], the shift of Silk Road bitcoin to Coinbase raises the question of whether bitcoin may see some short-term headwinds, according to Conor Ryder, a researcher at the crypto markets monitoring firm Kaiko.
According to Mark Connors, head of research at digital asset manager 3iq, whether the market will absorb those pressures will likely come down to the market’s makeup. In other words, how the market responds to a possible market-moving event will primarily depend on who the token holders are and how many tokens they possess.
According to Connors, the present market makeup of bitcoin may make it more able to withstand selling pressure than it was after the Terra meltdown last spring. The market has less leverage than the previous year, which explains this. Also, compared to last year, when the market was swamped with many crypto-curious investors holding much lesser sums of bitcoin, more investors now possess wallets containing more tokens valued at over $1,000.
Government’s Plans for the Transferred Bitcoin Remain Unknown
The government’s upcoming announcement about the newly transferred bitcoin could yet cause a shift in the price of bitcoin. The government’s ambitions for the tokens are still very much a mystery. It’s yet unknown if the government will put the bitcoin up for auction. It is also unknown if the government will ever consolidate the assets.
It is unclear if the tokens were utilized in criminal activity or were taken from a third party. Therefore the government’s handling of the recovered bitcoin is being closely watched. The American government’s action might be interpreted as an effort to regulate cryptocurrencies like bitcoin strictly.
The government’s action could portend increasing regulatory surveillance of Coinbase-style cryptocurrency exchanges. The biggest cryptocurrency exchange in the country is Coinbase, which has recently been under regulatory scrutiny. The U.S. Securities and Exchange Commission threatened legal action against Coinbase in December over the company’s plans to provide a loan product, which the SEC claimed would count as security.
Concerns among investors and a decline in bitcoin price were brought on by the U.S. government’s recent transfer of $1 billion worth of bitcoin to wallets under Coinbase’s management. Although the government’s plans for the confiscated bitcoin are still unknown, some contend that the market may be better able to withstand future sell pressure because of the existing makeup of bitcoin holders. Investors should remain aware and cautious about any new events in the cryptocurrency market as the situation evolves.