The Perfect Bitcoin Auction Storm: the $860MM in BTC Seized from Infraud and the $1.8 Billion in BTC Seized in Bulgaria

Guest writer tap21x

Last week Sergey Medvedev was arrested in Bangkok. This was part of a coordinated international raid that netted the arrest of 13 people across the globe associated with darkweb site “Infraud” as reported widely in the press:

https://www.washingtontimes.com/news/2018/feb/9/sergey-medvedev-russian-cybercrime-suspect-arreste/ https://www.cbsnews.com/news/us-russia-cybercrime-dark-web-market-suspect-sergey-medvedev-thailand/

Apparently, Medvedev was the administrator of the escrow service that Infraud ran to prevent members from ripping each other off in their transactions that seem to have been centered largely on stolen credit card information and devices to steal such info. (See https://krebsonsecurity.com/2018/02/u-s-arrests-13-charges-36-in-infraud-cybercrime-forum-bust/)

Sergey Medvedev arrested in Thailand

Transactions were (of course) conducted using bitcoin, and reports immediately came in that Thai police seized 100k BTC from Medvedev (worth $860MM USD at the moment). How Thai police could have gotten his private keys is a matter that has been debated on Reddit since the arrest. While one commenter humorously suggested that skillfully applied $2 pliers could circumvent any digital security measures, it is obvious that many nefarious forms of “advanced interrogation” would have been capable of producing the private keys. What isn’t clear, is what will happen to the reported BTC worth nearly $1 Billion. Will the Thai police keep it? Will the US Government end up with it? Will they split it? Most importantly, will it be sold off?

The US Marshal’s Service obviously has a track record of selling off BTC with the most notable example being the Silk Road Auction in 2014 after the arrest of Ross Ulbricht where Tim Draper and others bought huge chunks of the seizure at auction.

Obviously, an $860 million USD BTC auction would make a lot of headlines and could have a significant impact on BTC markets regardless of what the eventual auction winners planned to do with the coins. But, a lingering question remains: What if Medvedev coins weren’t the only ones seized?

The Thai police apparently elected to announce their BTC seizure. But, the coordinated international dragnet also involved law enforcement in the U.S., Britain, Australia, France, Italy, Kosovo, and Serbia. Chances are good that there was additional BTC seized from the other 12 arrested individuals. Luckily, the Department of Justice’s grand jury indictment of those people might give us a clue how much the DOJ thought those individuals MIGHT have.

Here is the grand jury indictment of 36 people that led to that arrest. (https://www.justice.gov/opa/press-release/file/1032021/download) As the US gov’t is eager to seize any and all ill-gotten gain in such arrests, the document contains a bullet list of how much money the government would like to seize from each of the indicted defendants. The forfeiture list starts on page 46.

In the case of Medvedev, and certain other ringleaders and others, the list just shows “to be calculated”. This makes sense since Medvedev was apparently running Infraud’s escrow service and the Feds didn’t know how much Infraud BTC would be under Medvedev’s control. But, for 21 of the other defendants, the indictment does list actual dollar amounts. My quick back-of-the-napkin addition is showing that these amounts add up to something like $566,047,662.74. Obviously, it’s possible the arrested individuals didn’t have these amounts, these amounts were no longer in BTC, the other 12 individuals actually arrested were not the ones on the list that correspond to the higher dollar amounts, or the arresting authorities were unable to recover these amounts. But, these are the amounts the DOJ would have been very happy to seize from these individuals.

In any case, it wouldn’t be at all surprising if at least another $200 Million in BTC was seized from the other 12 arrested individuals. So, if we add this amount to Medvedev’s $860 million, we could easily be talking about $1 Billion USD in BTC.

Photo: Bloomberg, Bulgaria is the most corrupt country in Europe: former Prime Minister Sergey Stanishev shows the country on a gingerbread map next to former EU Commission President Jose Manuel Barroso

On top of this $1 Billion in Infraud BTC, we also have yet to account for the 213,519 BTC reportedly seized by Bulgarian authorities last May. (See https://www.coindesk.com/bulgarian-government-sitting-3-billion-bitcoin/ and http://www.selec.org/p667/29+May+2017) Apparently, Bulgarian officials have been refusing to comment on what has or will happen to those coins with one report quoting a Bulgarian Prosecutor as claiming that no such BTC exist. Common sense would dictate that the first step in making a large fortune in confiscated cryptocurrency disappear would be to deny it ever existed. So these denials cannot be taken at face value. What we do know is that those coins would be worth something like $1.8 Billion USD today.

So, between these two raids, we could have $2.8 Billion in seized BTC. Here’s the nightmare scenario: some combination of the US/Thailand/Others in the Coalition decide to auction off the Infraud coins, then Bulgaria doesn’t want to get beat to the punch and they decide to auction off their seized coins. All of the sudden, we are staring down the barrel of a $2.8 billion USD BTC auction season. Some will call it far-fetched and impossible. But, the timing is perfect. The BTC market has basically just been steadily falling since the peak.The Bulgarian authorities reportedly seized their coins in May and watched the price skyrocket until December. Why sell since the market was just rising and rising? Now, they have seen the BTC market fall and fall for two months.

Last week, the Bulgarians get the news that the US and the other arresting countries may suddenly have their own treasure trove of $1 billion USD in seized BTC. Now there may be two or more players in the mega cap bulk BTC sales game…plus prices are falling. The Bulgarians may just decide to unleash those coins. We already know that the US Marshals are more than happy to auction off huge amounts of coins at a whim. We also know that the press would LOVE to report on billion dollar bitcoin auctions, and that the resulting headlines could very likely affect the behavior of casual investors and newbs: “They’re going to sell a BILLION dollars of them….yeah, hard pass on buying for now.” That could be the case even if it turns out that Bulgaria has already stealthily and slowly sold off their coins. Whatever the chance may be of any of this occurring, only one question remains: what would the impact be on the market if some version of this DOES HAPPEN involving any substantial portion of the Infraud and/or Bulgarian coins?

tl;dr We could have a hell of a bulk BTC auction season coming up!