Scant news on Bitcoin auction….how much does it matter?

A great moment in Bitcoin history, the 5 PM EST deadline for USMS to notify the winning bidder for Silk

A great moment in Bitcoin history, the 5 PM EST deadline for USMS to notify the winning bidder for Silk Road’s bitcoins, has come and gone. Not much to report, but recall that the US Marshals Service never committed to disclosing results to the public. If they do not change their position, the only way people will know is if enough bidders disclose their results to piece together the entire picture.

Thus far, we do know that 45 registrants placed a total of 63 bids for the 10 blocks. We also know that Barry Silbert’s SecondMarket syndicate of 42 bidders were not winners:

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Two reddit users also posted e-mails informing them that they were not winning bidders. One had bid $451.13. The other said his bid was “$400-$500 and I’ll explain why later.”

Why was this auction so important?

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It wasn’t, at least in terms Bitcoin’s well-being and underlying value. Prices did climb again during the past 18 hours, spiking by over 4% just before the 5 PM EST deadline. But it’s difficult to argue that the bids should truly reflect anything about Bitcoin’s value not already known. It is also circular, since the bidders themselves must have considered the going market rate.

Practically speaking, a Bitcoin exchange is a far more advanced and efficient form of an auction. The USMS did not make this easy. They required a $200,000 deposit, to be sent wire transfer and non-refundable if the bidder fails to comply with several other rules. Everything is done on paper (and communicated via e-mail). There is no visibility into the other bids. If the government seized publicly traded shares and (theoretically) decided upon their liquidation, a regulated exchange would be the preferred venue.

Perhaps the only advantage would be some savings in exchange fees, which are more than offset if the bidder overpaid relative to the going market rate. In terms of security considerations, it is unlikely that the major participants have never bought bitcoins on an exchange or other online service. Indeed, Alan Silbert tweeted the following:

It will be interesting to see how the bitcoins are transferred to the winner. All the USMS has indicated was that “the winning bidder(s) will be given private instructions related to the transferring of the bitcoins.”

More plausible is that for many, this was the opportunity to take part in a historic moment. There was valuable PR for Bitcoin in its being actively handled by a government agency. And a minimum level of participation was necessary to avoid major arbitrage.

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