The IRS has seized crypto $1.2 billion worth this fiscal year

Since the 2013 takedown of Silk Road, a dark web marketplace trading in illegal goods, where Bitcoin was often used for payment, the U.S. government regularly holds auctions for its stockpile of Bitcoin, Ethereum, Litecoin, and other cryptocurrencies it seizes and holds. CNBC’s interviews with federal agents and prosecutors suggest the U.S. has no plans to step back from its role as a crypto broker.

In 2021, the U.S. government keeps auctioning off some spare Litecoin, Bitcoin, and Bitcoin Cash confiscated as part of a tax noncompliance case. For years, the government has been seizing, stockpiling, and selling off cryptocurrencies alongside the usual assets. As cybercrime picks up — and the haul of digital tokens along with it — government crypto coffers are expected to swell even further.

“In fiscal year 2019, we had about $700,000 worth of crypto seizures. In 2020, it was up to $137 million. And so far in 2021, we’re at $1.2 billion,” told CNBC Jarod Koopman, director of the IRS’ cybercrime unit.

The takedown of Silk Road in 2013, a now-defunct online black market for everything from heroin to firearms, is where federal agents really cut their teeth in crypto search and seizure.

“It was totally unprecedented,” said Sharon Cohen Levin, who spent 20 years as chief of the money laundering and asset forfeiture unit in the U.S. Attorney’s Office for the Southern District of New York.

Silk Road, which operated on the Dark Web, accepted payments exclusively in Bitcoin. It promised some degree of anonymity for users. Despite the reputational hit, it helped to pump up the Bitcoin price by making the coin popular beyond the IT sector.

When the government crackdown Silk Road, federal agents had to figure out what to do with all the illegal Bitcoin. However, this experience helped to establish a workflow that remains in place today. It uses legacy crime-fighting rails to deal with tracking and seizing cryptographically built tokens, which were inherently designed to evade law enforcement.

″’Follow the money’ is not new. Seizure is not new. What we’re just doing is trying to find a way to apply these tools and techniques to a new fact pattern, a new use case,” said Jud Welle, a former federal cybercrime prosecutor of 12.5 years.

In November 2020, the government seized Bitcoin on $1 billion worth related to Silk Road. It appears clear that more and more of these crypto seizure cases are being exposed to the public, like in the case of the FBI’s breach of a Bitcoin wallet held by the Colonial Pipeline hackers earlier this spring.

Recently, following a more than yearlong search, the Department of Justice hired San Francisco-based Anchorage Digital to be its custodian for the cryptocurrency seized or forfeited in criminal cases. Anchorage, the first federally chartered bank for crypto, will help the government store and liquidate this digital property.

“The fact that the Marshals Service is getting professionals to help them is a good sign that this is here to stay,” said Levin.