Venture capitalist Tim Draper, sole winner of an auction last week of 30,000 bitcoins by the U.S. Marshals Service, called the sale a vote of confidence by the government in the nascent crypto-currency.
The well-known Silicon Valley investor partnered with Palo Alto-based Vaurum, which facilitates over-the-counter bitcoin trading, for the sale but would not discuss how much he paid.
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Draper, a major backer of Vaurum, will partner with the startup to use the coins as a liquidity source for Vaurum's trading platforms in emerging markets, Draper told reporters in Palo Alto on Wednesday.
"If they thought that they were going to try to put the kibosh on bitcoin, I think they would have just buried these," Draper said, referring to the government's stance on the currency. "Instead, they decided that this was of real value to society."
The bitcoins, a virtual currency that is "mined" by computers solving complex algorithms, were seized last year by the Marshals Service in a crackdown on illegal online activity.
Acceptance of bitcoin has been growing as more merchants allow customers to pay for goods and services with the currency.
The U.S. Marshals Service auctioned off 29,655 bitcoins at an estimated worth of about $18 million in an online, sealed-bid auction that drew more than 40 bidders, including a number of well-known players in the crypto-currency. Terms of the sale have not been disclosed, but the success gives the virtual currency more legitimacy as a means of exchange.
The bitcoins auctioned off were part of 144,000 bitcoins seized in October in a raid on Silk Road, an Internet black-market bazaar that authorities said had been used for illegal drug transactions and other goods.
A spokeswoman for the U.S. Marshals Service said it will not conduct another auction of bitcoins unless there is a court order for the agency to do so.
Draper told reporters his next fund will sport "a very high concentration" of bitcoin related investments.
"Of course, no one is totally secure in holding their own country’s currency. We want to enable people to hold and trade bitcoin to secure themselves against weakening currencies," the Vaurum statement said.
Draper is from a prominent Silicon Valley family, the son of one of the nation's first venture capitalists and father of another. In 1985 he founded Draper Associates, which would grow into Draper Fisher Jurvetson, known for investments such as online communication service Skype, electric carmaker Tesla and Chinese web services company Baidu.
Like many in Silicon Valley, Draper has embraced bitcoin. With its open internet architecture and growing use as an alternative currency, it appeals to venture capitalists fond of open and disruptive technologies.
Andreessen Horowitz and Union Square Ventures back bitcoin wallet Coinbase and Lightspeed Ventures backs bitcoin exchange BTC China.
In addition to Draper, Vaurum has backing from former AOL Chief Executive Officer Steve Case and Battery Ventures.
(By Gertrude Chavez-Dreyfuss; Additional reporting by Nate Raymond; Editing by Bernadette Baum, Cynthia Osterman and David Gregorio)