Oh winners, where are ye?

I love the assumption that just because they didn’t win they must have been outbid.

That could be the case.

But it could also be the case that winners are not coming forward because there aren’t any. And that’s mostly because the whole auction was a sting.

I find this a surer explanation than the idea that the auction cleared at a ridiculously above market price level because new entrants were so keen to overpay for size.

For, if I was the govt stuck with a bunch of bitcoin i couldn’t shift because everyone knew my coins were the Silk Road batch, I too might be inclined to “launder” the association away via a sealed auction that would make everyone assume that the coins were no longer on my book but actually still were. Especially if the process also provided me with great information about prospective bidders. Much easier than buying stock in the market directly in any case.

Not only would I then be free to use the coin as I saw fit, I could use it in a way that allowed me to operate undetected in the shadowy bitcoin illicit service mkt.

Which is why until a bona fide winner comes along and openly declares himself a winner and proves he got the coins, I remain suspicious of all “we were outbid” announcements.

Especially since there’s a whole other level of bluff and game theory to consider. Real winners (especially if the price was lower than expected) have every incentive to announce they were not rewarded (or that they were outbid) so as to offload the coin in the market at a favourable price.

It’s called talking up the mkt. After all, as far as I can tell, there is no requirement for winners to be honest about the outcome of their bids. They are providing this information voluntarily and with agenda.

If I won a house auction at market price and knew noone could prove what price I really paid for it I’d have every incentive to indicate that my winning bid was much higher than it really was. Alternatively I could pretend I didn’t win at all when in fact I did.

The whole secret winning bidder thing is a wonderful ploy which has been used by auctioneers defending markets for years. The art market is perhaps the best example of this sort of thing.

The point is that nobody can trust any clearing price talk unless a) the marshals announce the price of the winning bid or b) a winner proves they were the winner by publicly disclosing the documentation proving that is the case.

Meanwhile, if a winner does come forward — or the marshals do eventually announce a clearing price well above market price — all that proves is that bitcoin is sooo illiquid that the premium for being able to transact in “size” is as much $100.

That’s not impossible. But it probably also means that there is a liquidity cost to offloading it in size as well.

What will be interesting is how these particular coins end up travelling through the bitcoin economy and whether they eventually do get stigmatized due to their government association anyway?

Game theory. You’ve got to love it.

Some quick very speculative math based on what we do know. Please do correct if I have got any of the logic wrong.

There were 63 bids by 45 registered bidders. Each bid requires a 200k deposit. That means about $12.6m worth of actual deposits were transferred for stock that should have been worth approx $17.7m during the time of the auction. Whilst those deposits are not necessarily indicative of absolute value — because a deposit doesn’t reflect total transaction capability — the nature of the market is such that if you had x amount of capital to spend on bitcoin you would have an interest in submitting as many bids as you have the capability of making deposits.

Thus I would say the $12.6m number is possibly a fair indication of what was close to minimum market demand. Based on that figure alone I think we can deduce that the clearing price could not have been lower than $424 per bitcoin. Based on the same information, and presuming that all bidders had at most $190k in spare purchasing power (because if they had $200 they would have provided another bid) we get to a maximum demand number of $24.6m, which works out to be $829.

That gives us a range of $423-829.

However, that top figure should really be adjusted for the fact that there were only 45 registered bidders and 63 bids, meaning at least 18 of those bids don’t reflect additional purchasing power on a per bid basis because that purchasing power was expressed in already expressed in a new bid. In which case you arrive at a max demand point of $21m which takes you to a maximum bid potential of $708.

Which gives us an indicative market mid-point of $525, which I would say could be a fair proxy for the real clearing price. That is also congruent with where the market was trading at the time of the auction (in a way that accounts for the additional supply coming to market).

Bring on the FOIA requests in any case.


Update: one deep pocketed winner, with an interest in declaring himself (albeit not the level of the winning bid) has come forward. The US marshals have confirmed only the fact that there was a single winner, but not his identity. If it’s a bluff it’s a fanciful one. At this stage Occam’s razor comes into play.

My logic above meanwhile was totally flawed. Not sure what I was thinking. Something about figuring out $ demand from provable funds chasing finite stock. It was late and I was distracted. It seemed so logical in the wee small hours of the morning. The minimum bid, of course, was for one block of less than 3000 bitcoin, not the full amount. And since it was a multiple auction the quantity could be adjusted. The fact that there were more bids than registered bidders simply meant that the same entity could use the unencumbered differential to bid multiple times.

This is a deep pocket story.

13 thoughts on “Oh winners, where are ye?

    • Yes. An FOIA might be a good way round it, and if it was refused on national security grounds we could assume the stock was still in govt hands. Then again they could always do a “we can neither confirm or deny”. I wonder if there is a precedent.

  1. Isn’t there another arm of the US govt worried about opaque dark markets & HFT etc and here they are running an opaque market?

    Would have been much better to have run a live auctioning process where we could have seen them bitcoiners fighting (or not) over the bitcoins.

    “there is a liquidity cost to offloading it in size as well” is a point you won’t see mentioned anywhere.

    I did like this quote “These people will probably hold the bitcoin over the long haul and that’s good for the industry” sounds just like the gold market. Problem for bitcoin is that gold has a 5000 year first mover advantage.

  2. Why would the coins be stigmatized? It is already proven large legitimate investors are interested. So what if the coins came from silk road? Plenty of bitcoin users owned them before they PAID them to silk road. You seem to make a lot of assumptions based on little facts. We can make uneducated guesses all day about unrealistic outcomes based on zero actual knowledge. Isn’t it just as likely there was a tie in the bids? Maybe they haven’t released info due to an ongoing process? Also, you make no mention of the fact everyone can publicly see these coins in the Marshall’s wallet and will be able to see as soon as the coins are moved to another location.

  3. Something I haven’t seen discussed much is that maybe the buyer bought the coins above market for their numismatic value.

  4. Your theory is plausible, especially with a ‘single winner’ taking all lots – there is no way a rational actor would have paid more than market value (slippage… i know, but i said rational), and the more i think about it the more seems evident that the DoJ would have never sold below market value.

  5. As a significant Bitcoin investor and owner of most widely distributed Bitcoin publication, I have to call BS on some of your commentary. First, the people you are assuming lied about being outbid are reputable firms. If you think Circle, SecondMarket, and Panterra are all lying that is paranoia and not rational thinking, these are large, established, and trusted sources… They’re thinking long game, not “hey let’s lie and get the price to rise temporarily 10% until we’re caught”.

    The stigma you’re placing on SR coins is completely backwards, this I can personally confirm from conversations with several of the bidders. The fact the gov. sold these coins make them “mint” or clean. Freshly mined coins trade at a 2-3% premium off market. If you buy them from the gov you know the title is clean from the point you bought them.

    Few more points buy my flight is about to take off. Your numbers are completely off, the 20th was just a deposit, so if you submitted 1 or 2 bids you could have much more money behind the bid.

      • Illiquidity goes two ways. It depends who the active party is. In this case it’s a seller’s market because there are plenty of people prepared to overpay for size. It would be a buyer’s market if it was the otherway around. Illiquidity isn’t a remark about value, it’s a remark about market footprints.

    • Yes I agree my numbers were off. I was coming at it messily from a min and max aggregate demand point of view. But it was sloppy thinking. Hence the speculative warning. The question is will the money that was prepared to buy at auction buy regardless?
      As for your comment about reputable firms, the most reputable and long standing firms in the world still engage in game theory. It’s trading and it’s what professional firms do in commodity markets all the time. If you have interests in bitcoin you have as much interest in talking up an auction result as the winner. End of. That’s why banks don’t like it when their analysts break with the “house view” which happens to be good for the banks trading book.

  6. The government held an auction for property, something that happens everyday, and you think it’s a conspiracy theory.


    • Nope, I don’t. I think confiscated property auctions are revenue generating exercises. I just happen to think that in this particular case there was a useful opportunity to gather information about the big players in bitcoin and to accumulate some bitcoin inventory for government use. That said they could use the dollar revenue to acquire stock as well. Either way bitcoin empowers the government when it comes to tracking fraud and laundered money, versus cash. That is not a conspiracy, that is simply a true observation shared by many fintech experts. I find it ironic that pointing out government benefits from bitcoin results in accusations of conspiracy. Perhaps because the standard narrative is that Bitcoin is supposed to free us from government control rather than provide a means for the government to up its surveillance and control.

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