That is because Uncle Sam’s stash of some 200,000 bitcoin was seized from cybercriminals and darknet markets. It is primarily offline in encrypted, password-protected storage devices known as hardware wallets that are controlled by the Justice Department, the Internal Revenue Service or another agency.

What the federal government does with its bitcoin has long been a topic of interest among crypto traders because any sale could potentially swing prices or cause other ripple effects in the $1 trillion digital-asset market.

The U.S. has been notoriously slow to convert its stash of bitcoin into dollars. It isn’t HODLing, crypto parlance for “holding on for dear life" and never intending to sell. Nor is it waiting for bitcoin to go “to the moon" so it can sell its holdings for a hefty profit. Rather, that big pile of bitcoin is more a byproduct of a lengthy legal process than strategic planning.

“We don’t play the market. We basically are set by the timing in our process," said Jarod Koopman, executive director of the IRS’s cyber and forensics services section, which oversees all activities focused on cybercrimes.

Three recent seizures alone put more than 200,000 bitcoin in the government’s coffers, according to an analysis of public filings by crypto firm 21.co. Even after selling some 20,000 bitcoin, the U.S.’s holdings are still worth more than $5 billion, the analysis shows. The size of the government’s total stash is likely much larger.

From seizing illicit bitcoin to receiving the final order to liquidate the tokens for cash, the legal process can take years. In some cases, that worked in the government’s favor because the cryptocurrency wildly appreciated in value.

For example in 2016, when crypto exchange Bitfinex was hacked by convicted tech entrepreneur Ilya Lichtenstein, bitcoin was trading around $600. By the time Lichtenstein and his wife, Heather Morgan, were arrested in 2022 and the Justice Department announced its largest-ever financial seizure of about 95,000 bitcoin, the token had climbed to $44,000. Today, it is hovering around $27,000.

The U.S. government didn’t seize any crypto in last year’s high-profile collapse of exchange FTX, but it did take over hundreds of millions of dollars in assets, made up mostly of cash and shares of brokerage Robinhood Markets. Robinhood bought back the seized shares from the U.S. Marshals Service in August. FTX’s crypto assets are part of its bankruptcy estate; the company is expected to eventually use that money to help fill its $8 billion hole in customer funds or reboot the exchange.

When a government agency takes control of a crypto asset, Uncle Sam doesn’t immediately own that asset. Only after a court issues a final forfeiture order does the government take ownership and transfer the tokens to the U.S. Marshals Service, the primary agency tasked with liquidating seized assets.

While the case is pending, the government holds the bitcoin as evidence or proceeds of the crime. The Justice Department has been storing seized bitcoin on hardware wallets since the 2013 shutdown of online drug bazaar Silk Road. In recent years, the agency seized 69,000 bitcoin that once belonged to Silk Road founder Ross Ulbricht and 50,676 bitcoin from a Georgia man who pleaded guilty to stealing tokens from the bazaar.

“The government moves generally very slowly to dispose of those assets because they’ve got to do a ton of due diligence, the cases are often complicated and there’s a lot of red tape," said Nicolas Christin, a professor of computer science at Carnegie Mellon University.

The Marshals Service’s liquidation process has evolved along with the development of the crypto industry. In the early days of crypto, the agency held auctions to sell cryptocurrencies directly to interested buyers, many of whom booked a healthy profit, at least on paper.

Venture capitalist Tim Draper, who has made a fortune investing in cryptocurrencies, bought more than 30,000 bitcoin from the government via two auctions in 2014. In one auction, he paid $632 for each token when they were trading at $618. After bitcoin went down to about $180, he paid about $191 per token in another auction. Cumberland, high-frequency trading firm DRW’s crypto unit, won 27,000 bitcoin in an auction the same year.

For the first time in January 2021, the Marshals Service decided to liquidate some of its stockpile of seized digital currencies on crypto exchanges. Historically, it has sold crypto assets in multiple batches rather than all at once to avoid the adverse impact of a large sell order on the market. With its current practice, the agency takes additional steps to ensure the market isn’t adversely impacted, including liquidating the cryptocurrencies over a longer window of time.

One such sale occurred in March when the government sold 9,861 bitcoin via Coinbase. The Marshals Service confirmed the sale. Coinbase declined to comment.

“Our goal is to dispose of assets in a timely manner at fair-market value," a representative for the agency said.

In many cases, the proceeds from the government’s sales go toward reimbursing victims. Bitfinex said in July that it received more than $300,000 in cash and 6.917 of a cryptocurrency called Bitcoin Cash, valued at about $1,900 at the time, from the Department of Homeland Security. Government agencies that are investigating increasingly sophisticated crimes can also ask for help covering expenses for things like licensing fees for crypto-tracing software.

“It’s hard for us to quickly adapt," Koopman from the IRS said. “What has transpired in less than 10 years in crypto took the financial industry the same time to do in 100 years."

Write to Vicky Ge Huang at [email protected]