Ten Questions and Answers: How will the impact of the German government's market crash evolve after being labeled the "culprit of the plunge"?

Author: Azuma (@azuma.eth), Odaily Planet Daily

16,038.7 BTC, with a total value exceeding $900 million, is the amount of BTC that the German government transferred to exchanges and market-making institutions (part of which has been reclaimed) in just one day yesterday.

Since starting to sell BTC on June 19, the German government has been continuously "dumping" for about 20 days, with yesterday marking the peak of daily sales, exceeding the total amount sold in the previous nearly 20 days, causing the market's rebound momentum to be forcibly interrupted.

As one of the two most obvious bearish factors in the current market (the other being Mt. Gox starting coin-based repayments), many readers are not fully aware of the ins and outs of the German government's "dumping," making it difficult to accurately assess the potential impact of this event on the market. To clear up these doubts, Odaily Planet Daily will clarify this information in a Q&A format, combining market data and on-chain data.

• Q1: Where did the German government's Bitcoin come from?

A1: In January 2024, the police in Saxony, eastern Germany, announced the seizure of nearly 50,000 BTC, valued at about $2.2 billion at the time. The Saxony police commented, "This is the largest seizure of Bitcoin by law enforcement authorities in the Federal Republic of Germany to date."

These Bitcoins came from a piracy film website that was active around 2013, Movie2k.to. After Movie2k.to was shut down, German law enforcement, with the assistance of the FBI, identified the operators behind the site as a Polish national and a German national. There is not much information on the subsequent investigation details, but reports indicate that one of the suspects voluntarily handed over these BTC to German law enforcement.

After the seizure, the German Federal Criminal Police transferred these Bitcoins to one of their controlled addresses.

• Q2: How many Bitcoins did the German government actually hold?

A2: Currently, the only Bitcoin holdings of the German government that can be tracked through public information and on-chain analysis are the funds seized from Movie2k.to, amounting to approximately 50,000 BTC.

However, considering that the Saxony police described this seizure as "the largest operation" rather than "the first operation," it is possible that the German government has obtained some Bitcoins through other actions prior to this.

Therefore, we conservatively estimate that the German government held at least 50,000 BTC before the sell-off.

• Q3: When did the German government start selling? What is the progress of the sales?

A3: On June 19 of this year, Arkham monitoring discovered that addresses related to the German government transferred out 6,500 BTC, with 2,500 BTC moved to exchanges like Kraken and Bitstamp through new addresses, with BTC priced at about $64,000 that day.

Since then, addresses related to the German government have been continuously transferring out BTC almost daily, with amounts ranging from hundreds to thousands. Yesterday, the German government's sell-off reached a peak. On-chain analyst Yu Jin monitored that the German government transferred a total of 16,038.7 BTC (approximately $915 million) to exchanges and market-making institutions yesterday.

However, early this morning, addresses related to the German government gradually reclaimed a total of 3,673 Bitcoins (worth over $200 million), with 3,623 Bitcoins coming from Coinbase, Kraken, and Bitstamp, and 50 Bitcoins from an address starting with bc1qxw.

The Block's research director Steven Zheng analyzed that the German government likely signed a selling agreement with some exchanges, and these returned transactions may be because the exchanges could not complete the sales within the target price range, thus returning these BTC to the German government addresses.

As of the publication, the addresses related to the German government still hold about 27,500 BTC, which means the German government may have sold 23,500 BTC, with the sell-off progress nearing half.

• Q4: How to monitor subsequent developments?

A4: Arkham provides a tracking interface for the German government addresses, and it is recommended to use this tool for monitoring. If using other on-chain tools, it is suggested to directly track the following addresses.

Main holding address: bc1q0unygz3ddt8x0v33s6ztxkrnw0s0tl7zk4yxwd.

Common intermediary address during transfers: bc1qq0l4jgg9rcm3puhhfwaz4c9t8hdee8hfz6738z.

• Q5: Will the sell-off continue?

A5: To conclude, it is highly likely to continue.

One potential variable here is German parliament member Joana Cotar. Joana has recently called on the German government multiple times to stop the sell-off and suggested that the government convert the remaining Bitcoins into "strategic reserve funds."

Joana mentioned that she has expressed her concerns to Saxony's governor, President Kretschmer (Michael Kretschmer), Finance Minister Lindner (Christian Lindner), and Chancellor Scholz (Olaf Scholz), and invited officials to attend a "National Bitcoin Strategy" lecture on October 17 to discuss how to use Bitcoin to improve the national economy.

Clearly, given the current speed of the German government's sell-off, the remaining BTC will hardly last until October 17…

• Q6: What is the actual impact of the sell-off?

A6: CoinGecko data shows that the trading volume of Bitcoin in the past 24 hours is about $33.7 billion.

From an absolute amount perspective, the BTC sold by the German government does not account for a large proportion of the total market trading volume— calculating based on yesterday's peak data of about $710 million (16,039 - 3,673 = 12,366 BTC), it accounts for about 2.15%; assuming the remaining approximately 27,500 BTC (about $1.54 billion) is all dumped into the market, the proportion would be "only" 4.7%.

• Q7: Why did the market react so strongly?

A7: There are three main reasons.

First, the German government did not use the common over-the-counter channels for large transactions but directly "dumped" into exchanges, causing a surge in short-term selling pressure that easily broke the buying liquidity in major exchanges, leading to a rapid short-term decline in the market.

Second, the German government's continuous sell-off easily affects market sentiment, especially in the current already pessimistic market environment.

Third, the German government's completely transparent operation mode also provided an opportunity for some shorts to take advantage, exacerbating market volatility.

• Q8: How do various institutions and big players evaluate this matter?

A8: Regarding this matter, the most well-known public comment is undoubtedly Sun Yuchen's previous public statement "willing to purchase all BTC from the German government off-market," but there has been no progress on this matter. After Germany's loss to Spain in the European Cup, Sun sarcastically remarked, "The reason the German team lost may be because they sold too much Bitcoin."

Returning to the topic, regarding the German government's sell-off behavior, multiple institutions and big players have expressed their views.

Bitfinex stated in its latest report that the market has gradually realized that although the BTC transferred by the German government has a nominal value, it accounts for a small proportion of the total trading volume of BTC, which is a potential market bottom signal.

CoinShares research director James Butterfill stated that although the sell-off is relatively small, it has significantly affected market sentiment.

Analyst Alex Krüger calculated the current market liquidity and the market declines caused by previous large Bitcoin transfers, believing that in extreme cases, if the German government and Mt. Gox both choose to sell off at once (assuming the latter sells 30%), it could lead to a rapid short-term decline of 10.5% in BTC, but the market could ultimately absorb this selling pressure.

• Q9: What is the BTC holding situation of other governments?

A9: For the BTC situation of other countries' governments, Arkham has also created a dedicated tracking interface, excluding the German government, the total value of BTC holdings by various governments exceeds $1.5 billion.

The U.S. government** has the largest share of BTC holdings, valued at about $12 billion,** most of which comes from the Silk Road seizure in 2013 and subsequent investigations into the dark web market.

The UK government holds BTC worth about $3.3 billion, and the country's tax authority, HMRC, has previously auctioned off seized cryptocurrencies.

El Salvador holds $314 million in Bitcoin reserves. El Salvador's situation is different from other countries as it represents a strategic investment rather than asset seizure; the country became the first to adopt Bitcoin as legal tender in 2021 and has since accumulated more BTC through direct purchases and mining operations.

• Q10: Are there any selling movements from other governments?

A10: Besides the German government, the potential selling movements of the U.S. government are currently noteworthy.

Casa co-founder Jameson Lopp compiled the U.S. government's BTC selling records at the end of last month—since 2014, the U.S. government has seized and sold at least 195,091 Bitcoins, profiting over $366 million.

Recently, addresses related to the U.S. government have also transferred BTC multiple times—including transferring 4,000 BTC to Coinbase on June 27; transferring 11.84 BTC to an address starting with 3KHnT on June 28; and transferring 237 BTC to an address starting with bc1qvc on July 4.

Unlike the German government, the U.S. government holds various assets besides BTC, including ETH (about 50,000), BNB (about 40,000), UNI (about 300,000), and has transferred about 3,375 ETH to an address starting with 0x5ac4 on July 1. For users holding the aforementioned cryptocurrencies, it may be more prudent to pay attention to the U.S. government's address movements.