Germany Dumping $2.8B Bitcoin Is ‘Market Intervention,’ Despite Murky Legal Justifications

In January, Germany confiscated approximately 50,000 bitcoins from the administrator of Movie2k.to, a site accused of money laundering and illicit activities by the Saxony state. With assistance from Bankhaus Scheich Wertpapierspezialist AG in Frankfurt and the Federal Criminal Police Office, the state sold around 49,858 bitcoins between June 19 and July 12, generating over 2.6 billion euros ($2.8 billion).

Traders were puzzled by the sudden move, which significantly decreased the value of bitcoin and left authorities silent on the cause. The price decline was exacerbated during this period due to concerns over potential large-scale selling from Mt. Gox creditors and quick liquidations by bitcoin miners.

As a crypto investor, I’ve noticed that the prices took a significant dip early in the month, reaching around $53,500. This wasn’t just an ordinary price drop; it followed Saxony’s completion of its liquidation process. The market felt the brunt of this event as Bitcoin plummeted by over 7% in June.

Based on my extensive experience in the financial markets, I believe the authorities’ description of the recent sale as a “market-friendly” and “gentle” process is an attempt to allay concerns about potential market volatility. The implication here is that the sale was executed in a way that minimized disruption to the market, ensuring a fair price was obtained for the assets involved. Furthermore, the statement aims to reassure investors that even at a significant scale, this event would not have a direct influence on the bitcoin price. As someone who has navigated through various market fluctuations throughout my career, I appreciate the importance of maintaining market stability and confidence during such transactions.

However, some experts aren’t convinced.

“Romina Bungert, Enzyme advisor and former Centrifuge CFO, spoke with CoinDesk about an unfortunate incident that highlights the potential for unintended harm caused by incompetence from governments and authorities. She explained, ‘The way they managed this sell-off significantly impacted the market, making it a clear intervention in the public market.’ However, she raised the question, ‘Who will be motivated to hold this national authority accountable now? Certainly not the state itself.'”

In an email to CoinDesk, Patrick Pintaske, prosecutor and spokesperson for the UA BV’s Special Procedures Division, explained that due to the lawful nature of the emergency sale, they cannot afford to wait and observe market fluctuations. To preserve the economic worth of confiscated assets for potential future judicial seizure, action must be taken promptly.

Bad timing

As a researcher examining this situation, I’ve noticed that while the German authorities may have had valid reasons for selling, market analysts have raised doubts about the opportune moment of the transaction and its potential advantages for taxpayers.

Hartmannsgruber, serving as a board member for the German Blockchain Association and frequently consulted by politicians and authorities, contended that the bitcoin sale should have been postponed “given the concurrent announcement of the release of around 140,000 bitcoins valued at approximately $7.7 billion from the Mt. Gox lawsuit.” Despite acknowledging that perfect timing is an unattainable goal.

Hartmannsgruber inquired of the relevant bodies to provide evidence for their assertion that under 1% of the Bitcoin market value was routinely traded Over-the-Counter (OTC), and that this activity didn’t significantly impact Bitcoin’s pricing.

“On July 8, 2024, the sale of up to 16,309 Bitcoin, equivalent to around 830 million euros, may not transpire as stated. However, selling that quantity of Bitcoin in a single day could potentially have significant consequences under specific conditions.”

Legal ‘grey line’

Some experts challenge the idea that the authorities had no alternative but to sell the bitcoin in question, as the circumstances under which such a sale would be necessary appear less definitively urgent. The court’s order for the provisional seizure of the bitcoin does not compel its sale; the final decision on legality and binding nature of the confiscation has yet to be made by the concerned court.

According to the statement, the decision was made due to the legal requirement to sell valuable assets, such as bitcoin, before the completion of criminal proceedings if there is a ten percent or greater potential loss in value. Considering the unstable nature of the bitcoin market, these conditions have consistently been met.

And, indeed, bitcoin drops 10% in short time frames fairly often.

Timo Bernau, a lawyer and partner at GSK, stated that the authorities had relied on a legal concept derived from a prior court decision to justify their sale. In German law, public entities are presumed to adhere to a prohibition against speculation. This restriction on speculating with public funds stems from the fiscal principle of efficiency and economy, as established in a 2017 ruling by the Federal Court of Justice.

As a researcher examining the legal gray area surrounding the handling of digital assets by a government agency, I came across Bungert’s observation that the current rule set does not explicitly cover this issue. Hartmannsgruber further argued that authorities invoked Section 111p of the Code of Criminal Procedure to justify selling seized bitcoin, but the law only permits such action when there is a risk of spoilage or significant loss of value for the seized object.

Hartmannsgruber pointed out that the law doesn’t impose a duty to sell, but rather offers a chance to do so. As a result, it’s debatable if the sale was legally necessary.

If the Attorney General’s Office had the option to abstain from acting in this manner, yet chose to do so, one may wonder what motivated them to take such steps and why they represented their actions as a necessary duty.

Omkar Godbole contributed to this report.