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Pantera, Binary and SecondMarket Emerge as Silk Road Bitcoin Bidders

(@pete_rizzo_) | Published on June 19, 2014 at 23:00 BST

The US Marshals Service (USMS), the federal agency charged with carrying out the auction of 30,000 BTC seized by the FBI in the shutdown of online black marketplace Silk Road, inadvertently gave bitcoin industry observers a first look at some potential bidders for the bounty yesterday in a move that has since been widely lampooned by the media.

This unintentional error occurred when the agency accidentally revealed a lengthy list of names of those who had expressed interest in the auction process during an attempt to provide an informational update to these parties.

Though that list contained some prospective bidders, heavyweights in bitcoin’s burgeoning investment sector are now stepping forth as confirmed bidders that may prove more influential to the ultimate outcome of the auction.

Barry Silbert’s alternative investment marketplace SecondMarket and private investment vehicle Bitcoin Investment Trust, investment management firm and BitFury investor Binary Financial and bitcoin investment fund operator Pantera Capital have all indicated to CoinDesk that they will be participating in the upcoming auction, to be held on 27th June from 06:00 to 18:00 (EDT).

Speaking to CoinDesk, Binary Financial managing partner Harry Yeh explained the importance of his firm’s participation in the event, noting how it will provide what may be the first big stage on which the bitcoin investment community can showcase its purchasing power.

Yeh said:

“It’s just one of those big plays that you have to be involved with if you’re a big player. [...] It’s very rare that you have the opportunity to source such a large block of coins.”

The highly publicized auction is also generating increased interest from first-time investors, the firms say.

Yeh noted that bitcoins that passed through the US government could prove advantageous to own in the event of an audit, and that they may end up selling for 10%-20% below market value under certain conditions.

SecondMarket builds auction syndicate

Bitcoin Investment Trust shares now available on SecondMarket

SecondMarket and the Bitcoin Investment Trust, the investment initiatives led by CEO Barry Silbert, are among the firms that have been more vocal about their participation in the upcoming auction, publishing a call for interested investors to join their bidding process.

Silbert indicated that their strategy for the auction will be to open up the participant pool to those who may have been dissuaded or barred by requirements set for by the USMS.

He stated:

“Our syndicate will open up bidding to a much larger field of smaller purchasers, foreign buyers and bidders who don’t want their identity revealed to the US government.”

For example, Silbert noted that to participate, bidders need a US bank account account, which bars foreign investors. Further, bidders will need to make their identity known to the US government, though his comments suggest that members of SecondMarket’s syndicate will not need to abide by such restrictions.

Silbert also suggested uncertainty regarding the government’s auction process could also provide powerful leverage for investors to join the syndicate.

He added that it is not yet known what the government may ultimately release regarding the auction results, meaning the names of the coins’ owners could be publicized or otherwise disseminated.

Binary casts all-in bid

binary financial

Though it has operated mostly out of the spotlight since its inception, Binary Financial is organized as a private, multi-strategy hedge fund that invests in industrial mining, trades bitcoins and provides arbitrage services.

Yeh told CoinDesk that Binary intends to bid on all nine of the Silk Road auction blocks, and that the majority of its capital sourcing for the auction is nearly complete.

Aside from prestige that could come from participating in the event, he said that buying bitcoins directly from the US government has a number of practical advantages over obtaining the assets on the open market. He went on to discuss how buyers using an exchange to buy 3,000 BTC would pay a premium for the coins, as the act of buying the coins would force the price to rise as the order is being filled.

Still, he cautioned that average investors could feel the movements of the auction, and that they, too, should be prepared accordingly, saying:

“We expect on the day for there to be increase volume of trading and heavy selling pressure.”

Pantera’s stealth bid

Screen Shot 2014-06-19 at 5.38.47 PM

The participation of Pantera Capital is also notable given that the investment fund was created by influential backers Fortress Investment Group, Benchmark Capital and Ribbit Capital, and was at one time suggested to have had $147m in assets.

Dan Morehead, founder and CEO of Pantera Capital, did not provide many details about Pantera’s bidding strategy, citing the need to protect its competitive interests. However, he did confirm that Pantera has seen an uptick in interest from investors due to the upcoming Silk Road auction.

Morehead said:

“We’ve seen a lot of new investors come to us to talk about the auction, so I think it’s good for the community.”

Morehead also stated that Pantera is seeking to invest its own proprietary capital, along with funds from its investors, as part of the upcoming auction.

Fierce competition

Of course, the firms will likely face fierce competition from each other and other as-yet unknown bidders given the auction process designed by the USMS. The 29,657 BTC, now located in this wallet, are to be divided up into ten blocks, including nine blocks of 3,000 BTC and one block of 2,656.51306529 BTC.

Though this process could theoretically create multiple winners, this may be unlikely given the terms of how bids on multiple blocks will be governed.

For example, the USMS has stated that those who bid on multiple blocks could be awarded any number of blocks up to the maximum number. This means should a buyer move to purchase all of the coins, it could be awarded multiple blocks up to the overall total.

For more on the Silk Road auction process and its related rules, read our full report.

Auction image via Shutterstock

government auctioninvestorsPantera CapitalSecondMarket

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