Posted by: Greg Miller
October 23, 2014
When the US Marshall sold the 30,000 BTC, it made big news. People claimed the act fully legitimized Bitcoin and that is was a big victory for clearnet Bitcoin over its deep web counterpart. What they didn’t realized is that they just tested a new business for the deep web.
Before I get to that, let me talk a little bit about the auction. The Us Marshall only allowed a small group of people, who meet the requirements set by the US Marshall. Two of those requirements was a down payment of 200,000$ (it was later changed to 25,000$ and 50,000$) and they would have to register with the US Marshall.
Information remain limited, regarding the auction, but we got a lot of insight into the participants of the auction when America’s finest at the US Marshall accidentally leaked the list of participants by emailing it to the wrong person. Here is some of the people who were interested in the auction:
- Daniel Folkinshteyn, assistant professor at Rowan University
- Barry Silbert, CEO for SecondMarket
- Luther Lowe, director of public policy for Yelp
- Malcolm Oluwasanmi, chairperson of Little Phoenix Investment Group
- Fabrice Evangelista, quantitative arbitrage at BNP Paribas
- Michal Handerhanm, co-founder and COO of Bitcoin Shop
- Dave Goel, managing general partner of Matrix Capital Management
- Dinuka Samarasinghe, investment professional
- Chris DeMuth Jr., Rangeley Capital
- Fred Ehrsam, co-founder, Coinbase
- Jonathan Disner, corporate counsel at DRW Trading Group
- William Brindise, head investment manager at DigitalBTC
- Michael Moro, director at SecondMarket
- Jennifer R. Jacoby, lawyer at WilmerHale
- Sam Lee, co-founder, Bitcoins Reserve
- Shem Booth-Spain, artist and musician
- Avarus Corporation
- Tim Draper, Venture Capitalist
The Bitcoins were auctioned in 11 blocks or sets, but Tim Draper, Bitcoin believer and VC to many Bitcoin exchanges, won all 11 auctions. He won all of the 30,000 BTC, which were valued at 18 million dollars, by current market rate, but Barry Silbert, CEO of the investment platforms SecondMarket and Bitcoin Investment Trust, reported that the total of the bids equal roughly $28.4m. 10 million more than the market price!
Why Are Rich People Buying Bitcoin Well Above The Market Rate?
Investment funds, exchanges, and rich individual were interested in this action because this was a very rare opportunity for buying a large of BTC. There isn’t any platforms for buying large and very few opportunities of any kind, to buy such a large amount of Bitcoin. Exchanges need large amount of Bitcoin to keep up with demand and their exchanges liquid. Investment funds obviously are looking to invest into Bitcoin and in large amounts.
While a individual Bitcoin is not hard to get your hands on, getting a large amount of Bitcoins is very hard. Exchanges can’t handle that kind of volume (30,000 BTC). If you tried to buy that much through a exchange, the price would go up at incredibly. Even higher than the 10 million mark up Tim Draper paid.
The Opportunity For The Deep Web
After making your millions or thousands off the virtual drug trade, you need some where to exchange all the Bitcoins you have saved. There are very few ways you can exchange such a large amount of Bitcoin. The opportunity would reside in rich people and exchanges (and maybe, investment funds) who are looking for a large amount of Bitcoins without rising the price drastically. You could sell your BTC to them for a decent mark up but a price still lower than what the price would be if they went through exchanges. These individuals and organizations are willing to pay more for the opportunity to buy a large of Bitcoins privately. You can get paid for laundering your money and them can take on a speculative investment of a enormous size.
While it maybe be hard to contact and convince rich people who are looking for large amounts of Bitcoin, there is a big opportunity with exchanges in developing countries. Everyday, there is a new exchange that pops. These exchanges are desperate for Bitcoin and some of them have a large amount of fiat money from venture capitalists. In developing countries laws are much more relax and if they aren’t, a bribe could always fix that.
There are numerous exchanges to try to sell to but you will need to make a convincing story about how you got so many Bitcoins. The geeky, early adopter type is always a good choice and believable story.
Deep Web entrepreneurs have a unique opportunity to profit but from an activity that is usually a cost of doing business. There are very few people outside of the Deep Web world that has gathered such a large amount of Bitcoin, leaving rich organizations and individuals not much of a choice and willing to look the other way.