We understand what is behind the transfers of cryptocurrency from wallets controlled by the German authorities and how they affect the market

According to analysts, the German government has continued to transfer confiscated bitcoins to the wallets of exchanges and market makers since the beginning of July. According to information about the wallet, half of the 50 thousand bitcoins that were originally present on it have already been sold. However, transfers of coins are not necessarily related directly to their sale on the market.

So-called on-chain analytics is a type of study of data obtained from public blockchain networks such as Bitcoin and Ethereum. Blockchain technology is an open register of information with the entire history of transactions, allowing any competent person from anywhere in the world and at any time to “look” at these transactions and draw their own conclusions.

Researchers have begun to use on-chain to monitor user transaction behavior, price forecasts, and collate data from other information sources for deeper analytics. The blockchain itself does not reveal the purpose of such transfers, and analysts can only speculate without having actual information.

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For example, such analysis is often used by law enforcement agencies and analytics companies to combat financial and other crimes. If you can prove that the address belongs to an attacker, then the blockchain will allow you to find out about the entire history of his transactions even after decades. In this example, blockchain can help identify criminal connections and lead to the capture of the culprits.

What to consider when analyzing information
Germany is known to have transferred more than 27,000 bitcoins (more than $1.5 billion) in less than one month since mid-June 2024, according to data from analytics firm Arkham. These bitcoins were confiscated in January 2024 from the beneficiaries of a pirate site that violated the Copyright Act in 2013.

Bitcoins were obtained as a result of converting revenue from the site's activities. And the violators voluntarily handed over the bitcoins to the German Federal Criminal Police (BKA), said a statement from law enforcement officers dated January 30, 2024.

“The defendants voluntarily transferred them to official wallets provided by BKA,” the press release clarified the details.

At the same time, the public official documents of the German police do not indicate the specific BKA Bitcoin addresses to which the Bitcoins were transferred and where they are stored. This means that on-chain analytics companies, in this case Arkham, which allegedly found BKA bitcoins, are forced to look for inside information or take into account a number of logical assumptions to correctly identify wallets.



It is worth considering that Arkham does not disclose the search methodology, and there is no official data from the authorities. Even if we assume that Arkham are correct in their wallet markings, on-chain analysis as such does not allow us to see the reason and further fate of the thousands of bitcoins remaining in the wallet.

Any transaction can have different reasons and purposes - sale on an exchange, sale at a closed auction, transfer for safekeeping, return of funds to the accused, over-the-counter transaction and many more scenarios.

If you trust the marking of Bitcoin addresses from Arkham, then the German government makes deposits to the Kraken, Coinbase, Bitstamp exchanges, as well as to market makers Cumberland, DRW, Flow Traders and a number of other unmarked addresses.

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And even so, there are no statements about the terms of the deal with any of the players noted in the Arkham analysis. At the same time, we cannot give up the assumption that the data and assumptions about the sale of Bitcoin will turn out to be correct. Neither the German police nor the mentioned exchanges and companies commented on the movement of cryptocurrency.

Bitfinex exchange analysts believe that the real impact of the sale of cryptocurrency by the German authorities will be much less significant than investors expect, and believe that the market after the drawdown is near the local bottom.

Some investors believe that market recovery is impossible without eliminating the excess bitcoins held by governments. However, Bitfinex believes that the market will recover sooner, since the sales are already factored into the price.

However, news about the transfer of “German” bitcoins to exchanges is widely covered in the media and thematic channels, which indirectly affects market sentiment and also leads to increased volatility.

Joana Cotard, a member of the German federal parliament, said the government's decision to sell the seized bitcoins was wrong. According to her, such actions increase market volatility, and may negatively affect cryptocurrencies in the long term.

Cotard advocated treating Bitcoin as a national strategic reserve, especially since it is confiscated rather than purchased, according to CCN.

Germany’s actions differ from the experience of American authorities, who previously sold bitcoins through auctions. Thus, since 2014, the Marshals Service has been selling bitcoins seized in the United States through closed sales. And at the end of June 2024, the department chose Coinbase Prime as a single service for storing and trading confiscated cryptocurrency.