How Much Cryptocurrency Belongs to Governments Around the World?

How do government regulators and tax authorities acquire cryptocurrency and use it? The richest source of replenishing a government's cryptocurrency balance is digital asset confiscation. However, the methods of turning them into something valuable for the state differ significantly.

If you think that government officials personally monitor blockchain transactions, you are mistaken. There are analytical companies like Elliptic, TRM Labs, and Chainalysis that monitor digital flows. Governments are eager to invest in these projects as they help regulators understand ways to detect illegal activity and money laundering schemes. Analytical companies report all incidents to the public as well as provide confidential information about illegal activities in the crypto market upon request from regulators.

1. Execution of court orders. 

After receiving an order to freeze assets, crypto exchanges are forced to transfer cryptocurrency to the fiscal authorities. The government then transfers it to a state-controlled wallet for further use.

2. Third-party tip-off. 

This could be an employee of a cryptocurrency company, an anonymous "well-wisher", or sometimes even a competitor. Typically, this person (or group of individuals) has keys to a wallet or other access to assets and insights. They make a deal with the regulator to provide information in exchange for concessions or a plea deal to avoid prosecution.

3. Breaching the target defence. 

Specially trained individuals infiltrate criminal groups to gather incriminating information. Typical targets are international criminal organizations involved in human and arms trafficking and drug cartels. This is a risky undertaking that can take years before yielding results. 

Governments, not just drug dealers, keep their balances secret. Companies that assist regulators in locating and seizing illegal digital assets are not eager to share the amount of confiscated money with the public: they are bound to the same agreements as special agents embedded in crypto structures.

Regulators often reveal the actual quantities of seized cryptocurrency only when they transfer them to centralized exchanges to convert them into fiat. An example of this happened in March 2023, when the US Marshals Service sent 50,000 BTC, confiscated from Silk Road to Coinbase.

Yet we should understand that this is just the tip of the iceberg. Crypto is traded over the counter by institutional traders. These are special aquariums for whales, where they buy and sell large volumes of assets. Typically, off-exchange structures are designed to ensure dumps and buyouts do not affect exchange prices.

In February 2022, the US Department of Justice announced the seizure of $3.6 billion worth of BTC related to the 2016 Bitfinex hack. This is the largest confiscation of digital assets in history.

In April 2022, Florida federal prosecutors seized  $34 million in cryptocurrency from a company associated with the dark web. In July 2021, the Metropolitan Police seized £180 million in cryptocurrency in connection with a money laundering investigation.

As part of its fight against organized crime, the UK's National Crime Agency announced in August 2022 that it had confiscated cryptocurrency assets worth around £26.9 million between 1 April 2021 and 31 March 2022.

By piecing this information together, one can assume that around 1.6 million BTC has passed through government-owned crypto wallets since cryptocurrencies emerged.

Bulgaria held the top spot for Bitcoin ownership by a government, back 4 years ago.Following the arrest of OneCoin company leaders, 213,519 BTC were seized. Additionally, it was found that in 2017 and 2018, Bulgarian officials took BTC bribes from Ukrainians seeking an EU passport. Around 2,000 BTC were confiscated when the abuses were exposed. In 2019, these funds were used to purchase eight new F-16 fighters from the United States. Since the transaction amount was not disclosed, we cannot say how much cryptocurrency is still hidden in the country's Treasury wallet. However, Satoshi Nakamoto holds more Bitcoins than Bulgaria did at its peak.

The United States now holds the top spot for the highest amount of confiscated cryptocurrency, with a reported 214,000 BTC as of December 2022. Much of it is held in exchange-traded funds (ETFs), which are sets of financial instruments available for institutional investors to use. In other words, the US government earns from confiscated cryptocurrency, rather than spending it.

The same strategy was also adopted by the United Kingdom, whose regulators had confiscated and held approximately 60,000 BTC for the state.

The Ukrainian government holds 45,351 BTC. The state wallet accumulates not only cryptocurrency obtained through seizures but also crypto donations worth $124 million according to Elliptic. Digital funds are used to purchase thermal imagers, radios, drones, and other necessary equipment for the Ukrainian Armed Forces.

The Salvadoran Treasury holds 9,500 BTC. After Bitcoin was recognized as a legal tender and means of payment in the country, the balance is replenished through official purchases on exchanges and mining. The devaluation of Bitcoin, however, threatens to cause a catastrophic budget deficit for regulators. Almost 60% of government assets have lost value in a year.

Finland has officially confirmed its ownership of the 1981 BTCs. The country intends to use them to secure its border with Russia.Meanwhile, the Georgian parliament has announced a much smaller number, just 66 BTC, as their official crypto holdings. 

As cryptocurrencies and blockchain technology become more widespread, governments worldwide are likely to accumulate more digital assets. This is primarily due to the potential for investment gains and the use of such assets as instruments of governance and control in the digital finance realm. When analyzing who manipulates the crypto market, we must consider these major players.