Last July and December, Tim Draper played a big role in scooping up the orphaned Bitcoins of Ross Ulbricht. In the first auction, he bought nearly 30,000, but in the second he was only able to acquire 2,000. Since then, the market price of a Bitcoin has dropped roughly another $100, and this could have a stinging effect on actual interest in the March 5th auction of another 50,000 of the convicted Silk Road operator’s horde.
Bitcoin bulls have been disappointed in recent weeks as the price continually fails to recover in any meaningful way. On a given day the price can swing up or down as much as $20 if not more, and this instability creates several types of difficulties, including the ability to market Bitcoin as a reasonably sane way to grow money.
When the initial auction took place last July, many in the community feared that the price would steeply decline as the coins were dumped on the market. This did not happen because a single bidder – later revealed to be the venture capitalist Tim Draper – bought them for an undisclosed sum. It may be by the grace of his not mentioning how much he paid for them that the market did not see a great correction in one direction or the other. At that time, the open market valued the coins at between $500 and $625, depending on when, where, and how you obtained them.
By December, when Draper scored another 2,000BTC in the second auction of Ulbricht’s coins, the price had basically halved. Since Draper is targeting hedge funds with the Bitcoin (as well as some of the start-ups his firm funds), the actual fiat valuation of them is only marginally important – so long as they’re worth something, they serve their purpose.
Now with another 50,000 coins re-entering the ecosystem in less about three weeks, it’s hard to say what signal every day traders will take from this. It’s all about the information that will be made public – such as the price per coin that wins the auction. But this brings up another, very important question for Bitcoin aficionados – does it matter how much the government sells Bitcoin for?
After all, in many ways the regulators of this country speak out of both sides of their mouth in regard to Bitcoin. If someone buys a Bitcoin at a local event for $800 today, does that automatically raise the value of all Bitcoin? Not quite. A trend would have to develop.
So, what the auction really represents, then, is an opportunity for wealthier individuals to get hold of a great deal of Bitcoin at a stable rate. They won’t have to pay a lot of fees for trading on the markets. But if they’re buying it for a purely speculative purpose, we can expect to see the coinage re-enter the market at a higher price than they paid. That much volume at a higher price would have a positive effect on any given exchange.
However, in a similar scenario, if they get the coins at a bargain price, say $150 each, then we could witness yet another price decrease as they short the market for marginal gain. Personally, I think either the former scenario or a repeat of the last two auctions is most likely. I don’t think the March 5th auction will have a great effect on the overall price of Bitcoin, but I could be wrong. Perhaps this is a good time to hedge your bets with other strong currencies, like Darkcoin. Perhaps not.
In any case, you can get in on the auction here. This, of course, supposes you have $100K you want to put toward this cause.
To register, potential bidders must complete all registration requirements by noon EST March 2. Registration documents that were submitted for the Marshals’ previous Bitcoin auctions are not valid for this auction. Interested bidders must submit new registration documents to be considered for this auction. The 50,000 bitcoins are offered in 20 blocks: 10 blocks of 2,000 bitcoins and 10 blocks of 3,000 bitcoins. The winning bidder(s) will be notified on March 6.
Disclaimer: the author gets paid in BTC, so therefore the value of the coin is important to him. He also holds a number of other currencies which tend to rely on the value of BTC.
Images from Wikimedia.