Actually is does mean that it's worth what it sells for. The nature of seized goods increases the risk premium demanded from a buyer resulting in a lower price. Sources of risk:
1) Goods aren't as they seem. Drug dealers may not have treated the goods as well as average owner.
2) Risk of violence. I wouldn't want to buy some drug dealer's prized yacht... wouldn't sleep well.
3) Illiquid good. If it's hard to resale the good, it's going to introduce risk. For this auction that's the problem... selling tens of millions of dollars of bit coins will have a market impact.
Aside from this, there's also a transaction cost component.. it takes time and some money to transact (think opportunity cost of the 200k deposit, lawyer fees, etc.) and this would be reflected. The sale price would reflect both of these.
Now, if the good was completely fungible, risk-free and totally liquid (think cash), there would be no expected discount because of risk.. just transaction cost.
> Now, if the good was completely fungible, risk-free and totally liquid (think cash), there would be no expected discount because of risk.. just transaction cost.
Not totally liquid. That's a lot of bitcoints being sold. The buyer could not go ahead and sell all of those coins immediately after getting them without severely impacting the price. The buyer would probably need a couple of weeks to unload those BTC without moving prices much. That creates risk as there's a lot of volatility in BTC. As a result, the range of possibilities on what you would eventually sell those BTC for is wide. If you could (and maybe you can... I'm not super aware of all the BTC instruments these days) buy/sell BTC derivatives (options/futures) you would be able to transfer that risk to someone else, but it would be at a cost. This cost would roughly translate to how much you would be willing to pay to be able to sell a bitcoin at a future date at today's market price.
As a result, a buyer would be willing to pay market price - transaction costs - risk transfer cost.
Pricing the risk is of course tough as future volatility is especially tough to predict for BTC. But this is the fundamental rubric for how one would view the transaction.
It is apparently hard to trade that many bitcoins for the equivalent amount of government-backed currency or goods.
To be fair to Bitcoin, it's not the only "currency" with that problem... during the Argentinean crisis, many local governments paid their workers with alternative currencies ("patacones" and others) which rapidly devalued.
You're talking about liquidity not fungability. But regardless Bitstamp's 24 hour volume yesterday was 32,799 BTC. Trading that much bitcoin is not really a problem.
Not really, If I were to buy a 60ft yacht from a government auction for $100,000 I wouldn't expect every yacht manufacturer to drop their price for a 60ft yacht to $100,000.
Individual sales mean nothing to overall valuations unless the saleable item is truly unique. Bitcoins aren't.
Aside from this, there's also a transaction cost component.. it takes time and some money to transact (think opportunity cost of the 200k deposit, lawyer fees, etc.) and this would be reflected. The sale price would reflect both of these.
Now, if the good was completely fungible, risk-free and totally liquid (think cash), there would be no expected discount because of risk.. just transaction cost.