The FBI has seized a significant amount of Bitcoin over the years from individuals engaged in illegal activities involving cryptocurrency. While the exact amount is not publicly known, estimates put the value of seized Bitcoin in the hundreds of millions of dollars.
How does the FBI seize Bitcoin?
The FBI primarily seizes Bitcoin in two ways:
- Taking control of cryptocurrency wallets from suspects through court orders or search warrants.
- Seizing cryptocurrency holdings from exchanges that cooperate with law enforcement investigations.
When the FBI obtains a search warrant or court order, they can legally compel individuals to hand over access to cryptocurrency wallets under their control. They can then transfer the Bitcoin to wallets controlled by the FBI.
Exchanges like Coinbase that operate in the United States are required to comply with law enforcement requests from agencies like the FBI. If the FBI has evidence that some funds on an exchange were obtained illegally, they can seize the holdings with a subpoena or court order.
Major FBI cryptocurrency seizures
Here are some of the largest known Bitcoin seizures conducted by the FBI:
- Silk Road – In 2013, the FBI seized approximately 26,000 BTC as part of the shutdown of the Silk Road darknet marketplace. At today’s prices, those coins are worth over $500 million.
- James Zhong – In 2021, the FBI seized over 50,000 BTC from James Zhong related to the 2016 Bitfinex hack. Worth over $3 billion today.
- REvil ransomware – In 2021, the FBI seized $6 million in Bitcoin paid as ransom to the REvil hacking group by Colonial Pipeline.
- AlphaBay – In 2017 the FBI seized thousands of Bitcoin and other coins from the AlphaBay darknet marketplace. Exact amounts are unknown.
These are just some of the highest profile Bitcoin seizures – the FBI has likely confiscated millions more in smaller operations against illegal cryptocurrency activities.
Challenges with seized Bitcoin
The FBI has encountered some challenges after seizing large amounts of Bitcoin:
- Storage and security – Storing seized coins securely while court cases proceed can be complicated.
- Volatility – The value of the holdings fluctuates greatly during the legal process.
- Liquidation – Selling large amounts drives down prices and takes time.
Despite the challenges, the FBI continues to aggressively pursue the seizure of illegally obtained cryptocurrencies. The FBI holds auctions to liquidate some seized coins every few years when prices are favorable.
FBI cryptocurrency seizures by year
Here is an overview of notable FBI seizures by year:
| Year | Seizure Details | Estimated BTC Value |
|---|---|---|
| 2013 | Silk Road shutdown | 26,000 BTC |
| 2016 | Bitfinex hack | 50,000 BTC |
| 2017 | AlphaBay shutdown | Unknown |
| 2021 | REvil ransomware | $6 million |
This table shows some of the biggest publicized seizures, but the FBI likely seized smaller amounts from many cases each year as well.
Total estimated value seized
While the exact total has not been revealed, based on the publicly known seizures and accounting for the rise in Bitcoin’s price, it’s reasonable to estimate the FBI has seized at least $1 billion worth of Bitcoin over the years.
The FBI does not publish figures on the total holdings, so the public relies on adding up the numbers from major cases that get reported. It’s very likely the true total is far higher as many smaller cases get little publicity.
Legal requirements for FBI to seize Bitcoin
The FBI must follow strict legal requirements to seize and then utilize seized Bitcoin assets:
- A seizure warrant or court order is required to take initial control of wallets or accounts.
- Seized assets are held during court proceedings or investigations.
- A criminal forfeiture order is required for the FBI to legally take ownership of seized assets.
- The FBI then manages and sells the forfeited coins to convert into dollars.
Without following this legal process, the FBI could not legally gain control of and then liquidate the seized Bitcoin. However, some critics argue these laws still allow the seizure of assets without sufficient criminal prosecution.
How the FBI gains access to seized wallets
The FBI uses a few methods to gain access to cryptocurrency wallets of suspects so they can transfer seized coins:
- Obtaining private keys from suspects voluntarily or by court order
- Technical exploits of some wallet software vulnerabilities
- Cooperation of crypto exchanges to access user accounts
In the Silk Road case, the FBI took control of the site admin’s Bitcoin wallet when they arrested Ross Ulbricht. Many exchanges now allow law enforcement access to accounts with a subpoena. Hardware and software vulnerabilities have also enabled the FBI to hack some wallets.
How seized Bitcoin is stored
The FBI likely uses a combination of methods to store seized Bitcoin to keep it secure:
- Custom cryptocurrency wallets require agents to access using cryptographic keys
- Third party custodial storage using government contracted secure vendors
- Off-line cold storage to keep most holdings inaccessible online
Given the value of holdings estimated in the billions, the FBI probably uses very robust security tactics. Most funds are kept offline in cold storage to prevent remote access. Smaller amounts may be kept in secure hot wallets for operational use.
Selling seized Bitcoin through auctions
The US Marshals Service auctions off some Bitcoin seized by the FBI and other agencies periodically when prices are high. Some notable auctions include:
- June 2014 – 30,000 BTC from Silk Road auctioned in blocks; estimated $18 million in proceeds
- January 2018 – 3,813 BTC from various cases; earned over $40 million
- November 2021 – 50,000 BTC from James Zhong; estimated $56 million in proceeds
These represent major windfalls, but are small compared to the suspected total holdings. The FBI likely staggers auctions to avoid flooding the market. Tim Draper purchased a large amount in 2014 auction.
Use of seized crypto proceeds
Fiat currency proceeds from auctions of seized cryptocurrency are used to fund law enforcement operations. Some specific uses include:
- Compensating victims who lost funds from scams or hacks
- Financing investigations into cryptocurrency crimes
- Supporting FBI cybersecurity divisions
- Federal distributions through asset forfeiture programs
However, critics argue law enforcement agencies have too much leeway on how proceeds are utilized without sufficient oversight.
There are also proposals to use seized crypto to directly fund operations using digital assets without converting to fiat currency.
Controversies around seizure practices
Civil liberty advocates argue FBI cryptocurrency seizure powers and methods are too aggressive:
- Subpoenas based on weak evidence to access accounts
- Freezing accounts of innocent users during investigations
- Lack of recourse for retrieving wrongfully seized assets
- Questionable procedures for storing and managing seized assets
Laws like civil asset forfeiture allow property seizure without a conviction in some cases. There are concerns about abuse of powers, overreach, and lack of accountability.
Public perception of FBI cryptocurrency seizures
Public opinion on FBI seizure of cryptocurrency varies:
- Supporters argue it’s necessary to prevent criminal use of Bitcoin.
- Critics believe it infringes on financial privacy rights.
- Bitcoin investors are concerned about market volatility from FBI auctions.
- Victims of scams and hacks may support seizures to refund them.
- Libertarians oppose expanding federal law enforcement powers.
Increased regulation of cryptocurrency has trade-offs between enabling crime prevention and protecting rights. The debate continues about the appropriate powers and oversight for the FBI and other agencies.
Transparency of FBI cryptocurrency seizures
The opaque nature of FBI cryptocurrency seizures leads to accusations of excessive secrecy:
- Total seized holdings have never been fully disclosed.
- Details on storage, security practices, and management are hidden.
- Auction amounts and schedules are unpredictable.
- Proceeds from auctions cannot be accounted for.
More transparency could benefit public trust and understanding. But law enforcement may limit some disclosures to maintain operational security.
Conclusion
The FBI has clearly seized at least hundreds of millions in Bitcoin from illicit sources over the past decade. However, the exact total is unknown due to the confidential nature of FBI cryptocurrency holdings and operations. Seizures will likely accelerate as cybercrime involving digital assets increases. However, the FBI must balance security with transparency to maintain public support as it expands its powers over cryptocurrency markets. Oversight is necessary to prevent overreach and ensure seized assets are handled properly.
