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Germany’s $2.8B Bitcoin (BTC) Dump Is ‘Market Intervention’, Despite Obscure Legal Justifications
Germany May Have Finally Found a Legal Reason for Giving Away Nearly $3 Billion in Bitcoin (BTC) on the free market, but industry experts are not convinced by this reasoning.
Germany seized around 50,000 bitcoins from cryptocurrency operator Film2k.toa website that the state of Saxony has found guilty of money laundering and other illegal activities. The state, with the help of Frankfurt-based German securities trading bank Bankhaus Scheich Wertpapierspezialist AG and the Federal Criminal Police Office, sold about 49,858 bitcoins between June 19 and July 12, securing €2.6 billion ($2.8 billion), according to a declaration on Wednesday.
The motion perplexed traders and put a lot of pressure on the price of bitcoin while authorities remained silent on the reasons behind the sell-off. The selling pressure was intensified at the time as the market was also wary of mass sell-offs. sale by creditors of Mt. Gox and faster liquidations by bitcoin miners.
Prices bottomed out earlier this month at around $53,500 after Saxony completed its liquidation process, but not before wreaking havoc on the market as BTC fell by more than 7% in June.
When authorities finally issued a statement this week, the process was called a “market-friendly sale” that “was gentle on the market.” The statement said that “a fair market price was always achieved” and asserted that “at this scale, there is no direct influence on the price of bitcoin.”
However, some experts are not convinced.
Romina Bungert, an advisor to Enzyme and former CFO of Centrifuge, told CoinDesk, “This is a perfect example of the kind of inadvertent malicious activity based on a lack of competence that can come from governments and authorities.” She added, “The way they handled this sell-off has moved the market and its intervention in the public market. … So who will now have an incentive to hold this national authority accountable? Not the state.”
In an email to CoinDesk, Patrick Pintaske, attorney and press spokesman for the head of the Special Procedures Division (UA BV), said: “The emergency sale regulated by law means that we cannot wait to see if and how the market value will change. The economic value of the seized assets should be preserved as much as possible for later judicial confiscation.”
The German regulator may have justified its decision to sell, but market observers have questioned the timing of the sale and the benefits to taxpayers.
Philipp Hartmannsgruber, a Bitcoin (BTC) expert who is not convinced by the rationale laid out in Wednesday’s statement, said the sale netted about €600 million more than the BTC was worth when it was seized in January. “How much could the taxpayer have earned if the bitcoin had been held long-term? At the current exchange rate of around €60,000 for bitcoin, it would be worth about €390 million more today.”
Hartmannsgruber, who regularly advises politicians and authorities as a member of the board of the Blockchain Bundesverband e.V. (German Blockchain Association), specifically argued that the sale should not have been carried out “during the announcement that up to 140,000 bitcoins worth around $7.7 billion from the Mt. Gox case would hit the market,” although he stressed that perfect timing is never possible.
Hartmannsgruber also asked the authorities to identify the sources behind their claim that “less than one percent of the bitcoin market volume was regularly traded over-the-counter (OTC) and had “no direct influence on the price of bitcoin.”
“This may not be the case on July 8, 2024, when up to 16,309 BTC were sold for around €830 million,” he said. “If 16,300 bitcoins are sold in one day, this can have a huge impact under certain circumstances.”
The statement said the authorities had no choice but to sell. However, some experts point to a gray area because the boundaries of when an emergency sale is required seem a little less clear. The court did not require the sale of bitcoin because the statement said the proceeding was only “provisionally secured” because the court concerned has not yet made a decision on confiscation that becomes legally binding.
The decision, the statement said, was made because “the sale of valuables prior to the conclusion of ongoing criminal proceedings is required by law whenever there is a risk of a significant loss of value of approximately ten percent or more.” It also argued that, given the volatility of the bitcoin market, “these conditions have always been met.”
And, in fact, the value of bitcoin drops by 10% in short periods of time quite often.
GSK lawyer and partner Timo Bernau said the authorities had relied on a general principle from legal precedent to justify their sale. “In German law, there is a general ban on speculation for public authorities. This ban on speculation with public funds stems from the budgetary principle of economic efficiency and economy,” Bernau said. pointing to a 2017 ruling by the Federal Court of Justice.
Bungert noted that there was a legal “gray line” because “the rules for this government agency on the management of digital assets are not covered by the existing set of rules.” Hartmannsgruber argued that authorities cited Section 111p of the Code of Criminal Procedure to suggest they had no choice but to sell the bitcoins. However, the law states that after “an item that has been seized … may be sold if there is a risk of its deterioration or significant loss of value.”
“The law therefore does not provide for an obligation, but simply an opportunity to sell. It is therefore questionable whether the divestment was legally required,” Hartmannsgruber said.
“Although there are legal reasons why the Attorney General’s Office acted in this way, if it was not obligated to do so, the question arises as to why it nevertheless acted in this way and why it presented its actions as an alleged duty.”
Omkar Godbole contributed to this report.