What to Know About Crypto Auctions and the Future of Bitcoin

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Did you know that the US government frequently holds auctions for the cryptos it acquires during asset seizures? According to an article published by CNBC last August, the government had already seized over $1.2 billion worth of crypto for the year so far.

In this segment from Backstage Pass, recorded on December 20, Fool.com contributors Rachel Warren, Toby Bordelon, and Jason Hall discuss this phenomenon and a recent report on government crypto auctions by CNBC. Plus, they share their take on what this news means for crypto investing on a larger scale.

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Rachel Warren: But there’s one of the next things they’re going to auction. My guess is that it’s $56 million worth of cryptocurrency that the authorities confiscated as part of a Ponzi scheme case. It’s like, these are things that don’t make the headlines, but it’s still going on.

Apparently I was really fascinated” in July, the DOJ hired a San Francisco-based digital anchor to be the custodian of cryptocurrency seized or confiscated in criminal cases. It is the first federally chartered bank for the crypto and will help the government store and liquidate this digital property.” I think in this area, we have known that cryptocurrency has been an open area for abuse for some time.

I think that not only helps legitimize it, but it can also protect investors. Another point I wanted to highlight. I saw this interesting article on TechCrunch. We sometimes know that crypto experts have come before lawmakers and tried to explain how it works and what you see on C-Span, the puzzled look on some of these guys’ faces.

We want to have laws that weren’t written 100 years ago when there was no crypto. You want laws that will apply specifically to digital currency. This article was talking about not being anti-regulation, but anti-unworkable regulations that are very difficult to apply to crypto. He said “ultimately we need to regulate effectively, which requires legislation applicable specifically to digital assets”.

I think this is where lobbying is lagging behind technology. We had some of the recent tax changes that are applied to crypto, but some of them were tax law adjustments that have been applied for a while. Making this apply to digital currency is a whole different animal than what regulators have dealt with before.

I think it will be a process, but I really think more consideration needs to be given to how laws can be applied specifically to digital currency. Otherwise it might not be as effective and you have the bad guys who will just work around it. These are only my thoughts. [laughs]

Toby Bordelon: Why do we auction cryptocurrency? It’s one thing to sell a car at auction, but there is a robust and fairly efficient market for Bitcoin (CRYPTO: BTC), you can simply sell it on the open market. I don’t see why they are having an auction. It doesn’t make sense to me.

Jason Hall: Is there anything in the federal code regarding seized assets that have auctions?

Toby Bordelon: I don’t know, do they auction books, seize them, or don’t they just go to the bank and say, give me a few bucks for it.

Rachel Warren: One of the things that was auctioned off, they were going to reimburse victims of fraud. I think sometimes it’s used like that and then other times maybe Uncle Sam uses it.

Toby Bordelon: You can convert that bitcoin to cash quite efficiently without an auction process.

Jason Hall: Well, wait Toby. You are the lawyer here, you know better. Well, you’re not a tax lawyer.

Toby Bordelon: It’s true.

Jason Hall: The federal government does not consider Bitcoin or any other crypto asset to be a currency. It’s not a currency, it’s an asset.

Toby Bordelon: It’s true. They consider it property, would you auction it off like stock, whether you seized it or not?

Jason Hall: That’s a good question.

Toby Bordelon: Sell it through Schwab or something here, give us money regardless of the current market price?

Jason Hall: I’m going to crowdsource this one. If we have a viewer watching this live, please put them in our Slido. If we have an expert viewer watching the pre-record, email me, [email protected], twitter me, let us know. I’m curious now Toby.

Toby Bordelon: It’s a strange process. I don’t know exactly how it works, but it’s interesting. To your original question though. I’m like Rachel here. It doesn’t really change my point of view. I have long been skeptical of the claim that Bitcoin was somehow safe from the prying eyes of government authorities. It was one of the things that was a selling point.

Even though everything is made public on the blockchain, you can kind of do it anonymously and no one will know who you are. It convinced me that everyone does. It is obviously clearly traceable.

Jason Hall: Especially when it comes to big blocks, right?

Toby Bordelon: Yes. The government can and does seize it when it is used in various activities, as we have seen. This is what is happening. I don’t think it’s going to get better in that regard.

As crypto tries to get more and more legit and convince more people this is like a legit this is the way of the future this is how we’re gonna do business this will become even more traceable, even more controlled by governments.

They’re going to lock it down, they’re going to regulate it. Crypto is not the currency of people’s revolution against demand.

That’s basically what’s going to happen. Listen, you mentioned tax evasion. If you are someone who thinks that the government does not know how much crypto you have and how many taxable transactions you have made during this year, I strongly suggest you reconsider this assumption.

I think you have to be very careful to make sure you understand all the rules and what your tax reporting and paying obligations are. Because I suspect we are going to hear stories in 2022 about the government coming forward for people who have misreported their crypto assets.

Jason Hall: It’s like they’re trading stocks in a taxable brokerage account, isn’t it?

Toby Bordelon: Yes.

Jason Hall: The rules are basically the same.

Toby Bordelon: Yeah, basically, exactly. This can get nasty if you’ve made a lot of trades, so it’s something you want to look into.

Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Jason Hall owns Bitcoin. Rachel Warren has no position in the stocks mentioned. Toby Bordelon has no position in the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Twitter. The Motley Fool recommends Charles Schwab. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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