US government auction of bitcoins attests to virtual currency's appeal

Despite the plunge in the virtual currency's value, investors are lining up for US sale

PUBLISHED : Thursday, 26 June, 2014, 1:08am
UPDATED : Thursday, 26 June, 2014, 5:40am

Buyers from Wall Street to Silicon Valley are lining up to bid on a cache of bitcoins worth US$17.4 million, underscoring the interest in the digital currency even after its boom and bust.

Pantera Capital Management, a San Francisco hedge fund backed by Fortress Investment, and SecondMarket, a New York brokerage, are among those seeking to buy bitcoins from the US government at an auction tomorrow. A broad swathe of interested parties, from individuals to institutional investors, has requested details from the US Marshals Service, which is handling the sale.

"I know of small and large investors who are talking about investing in this," said Jaron Lukasiewicz, chief executive of Coinsetter, a New York-based exchange. "And there are probably some hidden players out there - hedge funds who are looking to get into the market."

The auction of 29,656 bitcoins, part of more than 144,000 the FBI transferred to US Marshals Service after shutting down the Silk Road marketplace and arresting its operator last year, represents 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.

"If an investor wanted to buy this much bitcoin all at once in the open market, they could bid the price of bitcoin up by 10 to 20 per cent by simply filling out that trade," said Gil Luria, an analyst at Wedbush Securities.

The sale excludes bitcoins the government obtained from computer hardware owned by Ross William Ulbricht, who the US said ran Silk Road. The marketplace was an online bazaar where anonymous users allegedly bought and sold drugs, phony passports and computer hacking services. Ulbricht is contesting charges and has filed a claim asserting ownership of the bitcoins.

The price of bitcoins skyrocketed from around US$12 to US$1,147 last year as technologists and speculators flocked to the digital currency, before dropping sharply amid regulatory crackdowns in China, Russia and elsewhere. They were priced at US$585.98 on Tuesday, according to the CoinDesk Bitcoin Price Index, which represents an average of bitcoin prices across leading global exchanges.