Germany Dumping $2.8B Bitcoin Is ‘Market Intervention,’ Despite Murky Legal Justifications

Experts call Germany’s process of disposing of seized Bitcoins “market intervention” because it caused a sell-off.

The law that authorities cited as justification for the sale falls within a “legal gray” line, according to one observer.

Germany may have finally laid out the legal justification for transferring nearly $3 billion worth of Bitcoin {{BTC}} to the open market, but industry experts are not sure about the justification.

Germany seized nearly 50,000 bitcoins in January from the operator of Movie2k.to, a website that the state of Saxony has found guilty of money laundering and other illegal activities. The state sold about 49,858 bitcoins between June 19 and July 12 with the help of Frankfurt-based German securities trading bank Bankhaus Scheich Wertpapierspezialist AG and the Federal Criminal Police Office, generating 2.6 billion euros ($2.8 billion), according to a statement Wednesday.

The move took traders by surprise and put significant pressure on the bitcoin price, while authorities remained silent on the reasons behind the selling frenzy. The selling pressure intensified at the time because the market was also wary of mass sales by Mt. Gox creditors and faster liquidations by bitcoin miners.

Prices bottomed out at around $53,500 earlier this month after Saxony completed its liquidation process, but it caused major turmoil in the market as BTC fell more than 7% in June.

When authorities released a statement this weekend, they called the process a “market-friendly sale,” which “treated the market kindly.” The statement claimed that “a fair market price was always achieved,” and said that “at this scale, there was no direct impact on the price of bitcoin.”

But some experts are not convinced.

“This is a perfect example of unintentional malicious activity based on incompetence from governments and authorities,” Romina Bungert, an advisor to Enzyme and former CFO of Centrifuge, told CoinDesk. She added: “How they handled this sell-off has impacted the market and is interfering with the public market. … So who will have an incentive to hold this national authority accountable now? Not the government.”

In an email to CoinDesk, Patrick Pintaske, prosecutor and press spokesperson for the Head of the Special Procedures Division (UA BV), said: “The legally regulated emergency sale means that we are waiting to see if and how the market value will change. The economic value of the seized assets should be preserved as much as possible for subsequent judicial confiscation.”

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Bad timing

German authorities may have justified the sale decision, but market watchers questioned its timing and the benefits it would bring to taxpayers.

Philipp Hartmannsgruber, a Bitcoin {{BTC}} expert who was not convinced by the reasons given in Wednesday’s statement, said the sale had yielded around 600 million euros more than the BTC was worth when it was seized in January. “How much could the taxpayer have made if the bitcoin had been held for the long term? At the current bitcoin exchange rate of around 60,000 euros, they would be worth around 390 million euros more today.”

Hartmannsgruber, who regularly advises politicians and officials as a member of the board of directors of the Blockchain Bundesverband eV (German Blockchain Association), argued that the sale should not have taken place, especially amid the announcement that 140,000 bitcoins worth around $7.7 billion from the Mt. Gox case would be released, but stressed that perfect timing is never possible.

Hartmannsgruber also asked authorities to cite the sources behind the claims that “less than one percent of Bitcoin market volume is regularly traded over-the-counter (OTC) and that there is “no direct impact on the Bitcoin price.”

“On July 8, 2024, this may not be the case when up to 16,309 BTC worth around €830 million are sold,” he said. “If 16,300 bitcoins are sold in one day, that could have a tremendous impact under certain circumstances.”

Legal ‘grey line’

The statement argued that authorities had no choice but to sell. However, some experts point to a gray area, as the boundaries seem a little less clear when you need to sell as an emergency. The court did not order the bitcoin to be sold because the transactions were only “temporarily secured”, the statement said, as the relevant court had not yet ruled on making the confiscation legally binding.

The statement said the decision was made because “the sale of valuables before the conclusion of ongoing criminal proceedings is legally required when there is a significant risk of loss of value of approximately ten percent or more.” It also argued that “these conditions are always met” given the volatility in the Bitcoin market.

And indeed, Bitcoin has been experiencing declines of 10% in short time frames.

Timo Bernau, a lawyer and partner at GSK, said the authorities were relying on a general principle from legal precedent to legitimise their sales. “In German law, a general ban on speculation is assumed for public authorities. Such a ban on speculation with public funds is derived from the principle of economic efficiency and economic budgeting,” Bernau said, pointing to a 2017 ruling by the Federal Court of Justice.

Bungert noted that there was a legal “gray line” because “the rules for this government agency’s handling of digital assets are not included in the current rule set.” Hartmannsgruber argued that authorities were citing Section 111p of the Code of Criminal Procedure to imply that they had no choice but to sell the Bitcoin. However, the law states that “a seized object … may be sold if there is a risk of deterioration or significant loss of value.”

“The law therefore does not provide an obligation, but merely a sales opportunity. It is therefore questionable whether the disposal is legally necessary,” said Hartmannsgruber.

“Although the Attorney General’s Office has legal reasons to act in this way, if it has no such obligation, the question arises as to why it acted in this way and why it presented its actions as if it were a presumed duty.”

Omkar Godbole contributed to this report.

Read more: It’s not Germany that’s selling Bitcoin. It’s one of its states, and it has no choice.