Bitcoin-based scams mean the federal government now needs a crypto bank


Due to a wave of cryptocurrency-fueled crime, federal law enforcement is seizing a lot of bitcoin. Now the US government is figuring out what to do with all of this.

This week, a small platform for cryptocurrency custody called Anchorage Digital announcement he had won a Justice Department contract to store and liquidate digital assets that federal law enforcement agencies seize as a result of criminal investigations. The government essentially hired a bank to store and sell billions of dollars in confiscated cryptocurrency, including bitcoin and ethereum treasures. San Francisco-based Anchorage Digital is an obvious choice for a partner because it is the first federally chartered bank for crypto.

“There is no traditional bank that actually offers these services because it is extremely complex from a technical point of view,” Diogo Monica, co-founder and chairman of Anchorage, told Recode. “It is very difficult to store them safely. In fact, there are many, many stories of people losing access to their bitcoin and other cryptocurrency wallets and completely losing access to them without being able to be recovered.

The fact that the US Marshals Service needs to hire a cryptocurrency company for help reminds us that as these types of digital assets become more widespread, they are also becoming more popular with criminals. In fact, as law enforcement has shut down illegal cryptocurrency operations, from ransomware programs to illegal online marketplaces, it is clear that the U.S. government could hold a very large amount of bitcoin, from ethereum and other cryptocurrencies. As a result, Uncle Sam could even become a bigger player in the crypto market in the months and years to come.

Since its inception, cryptocurrency has been popular with criminals because accounts and transactions are difficult to trace to a single person. Now, crypto is at the center of a wide range of illegal schemes, including blackmail scams, counterfeit Covid-19 vaccines, money laundering operations and illicit sales on the darknet. In the first half of this year, people sent over $ 2 million worth of cryptocurrency to Elon Musk impersonators after a scam on social networks, according to the Federal Trade Commission (FTC). And earlier this month, a Swede was sentenced to 15 years in prison after he pleaded guilty to orchestrate one of the biggest cryptocurrency-based Ponzi schemes the U.S. government has ever pursued. The man had tricked people into sending him bitcoin, along with other digital payments, under the guise of a (bogus) gold-backed investment opportunity.

“Cryptocurrency is not the government’s currency, so it has a very international reach, which is why it has become even more popular with transnational organized crime, as well as terrorism,” said Suzanne Lynch, professor. at Utica College which focuses on economic crime.

By investigating these crimes and prosecuting the perpetrators, federal law enforcement has acquired a large cache of cryptocurrency. In June, the DOJ seized approximately $ 2.3 million worth of bitcoins the FBI had obtained after following the movement of a ransom payment associated with the Colonial Pipeline cyberattack earlier this summer. It was after the agency seized about $ 1 billion in cryptocurrency that once belonged to Ross Ulbricht, creator of the online black market Silk Road, which federal officials shut down in 2013. Ulbricht was stopped that year and sentenced in 2015 drug distribution and money laundering.

“There is no differentiation here between crypto and an oil tanker, for lack of a better example, or car or fiat [currency], when it comes to how it will ultimately be used in an asset forfeiture scheme, ”said Ari Redbord, former prosecutor and head of government affairs at TRM, a cryptocurrency fraud detection startup.

The US Marshals Service is the agency responsible for holding and auctioning many seized goods, including works of art, rare items collectibles, and real estate, pharmaceuticals in disgrace CEO Martin Shkreli’s Wu-Tang album To Bernie Madoff’s apartments. Since at least 2014, DOJ’s asset forfeiture program, which is run by marshals, has taken the same approach with cryptocurrency and opened up the crypto stores it seizes for public offering. But the service of the marshals announced in 2019 that he was looking for more help managing all these digital assets.

“Price, how to value it, how to value it, how to liquidate it, how to keep it safe – people are forced to deal with the asset class because it is so prevalent now,” said Monica, of Anchorage, at Recode. Doing this well can be particularly tricky as the cryptocurrency markets can be extremely volatile.

As the DOJ moves forward with its digital asset management plan, calls for tighter cryptocurrency regulations are coming higher and higher. Senator Elizabeth Warren (D-MA), for example, said this month that cryptocurrencies should face stricter rules, while some senators recently proposed taxing cryptocurrency transactions to fund President Joe Biden infrastructure plan. Earlier this month, Federal Reserve Chairman Jerome Powell even suggested that the federal government could launch a digital version of the U.S. dollar as an alternative to crypto-currencies, although he still doesn’t know if it’s a good idea.

Despite growing concern from lawmakers and regulators over cryptocurrencies, their popularity is forcing the government to adapt. A recent survey by NORC, a research institute at the University of Chicago, found that 13 percent of people in the United States have bought or traded crypto in the past year alone, compared to estimate half of American households who invested in the stock market, according to Pew.

All of this reminds us that cryptocurrencies are only going to become more prevalent, which means crypto scammers aren’t going away anytime soon. So beware of requests for cryptocurrency payments from shady romantic prospects, too good to be true investment opportunities, purported blackmailers, and people claiming to be Elon Musk. If you’re not careful, your bitcoin could end up in the federal government’s new crypto bank.