How the US is making arrests and seizing crypto funds, like James Zhong's 50K+ bitcoin, using Chainalysis and other tools to identify criminals via transactions
Federal authorities are making arrests and seizing funds with the help of new tools to identify criminals through cryptocurrency transactions
Context & Ripple Effects
This story sits mid-way through an arc that began with the DOJ working with Chainalysis to trace bitcoin transactions on the dark web child-porn site Welcome to Video in 2019, then escalated with the $3.6B Bitfinex-hack seizure in 2022, the largest financial seizure in US history at the time. The Zhong case shows the same playbook applied to Silk Road-era funds: the public blockchain plus commercial forensics turns old 'anonymous' transactions into an arrestable paper trail.
The downstream consequence is that these seizures have quietly made the US one of bitcoin's largest holders — 21.co counted 200K+ bitcoin worth $5B+ from criminal seizures by late 2023, and by May 2025 Chainalysis put the government's top 20 crypto holdings at ~$20.9B. Law enforcement success has turned the Treasury into a whale.
First-order effects
- Criminals who moved coins years ago become identifiable today: transaction-analysis tools let investigators connect wallet clusters to real identities, as with Zhong's 50K+ bitcoin, converting dormant wallets directly into arrests and seizures.
- Every successful trace expands the government's crypto balance sheet, since seized funds are held rather than immediately liquidated, with sale timing set by internal process rather than market strategy.
Second-order effects
- Blockchain-analytics firms become indispensable federal vendors, and the stakes of those contracts show: Chainalysis itself has sued the US government over ICE's $94.6M contract with rival TRM Labs, meaning the same companies supplying investigators are now fighting each other for agency budgets.
- As domestic wallets prove traceable, illicit flows migrate toward sanctioned-entity addresses and newer DeFi rails — Chainalysis reports sanctioned addresses received over $100B in crypto in 2025, nearly eight times 2024, and its CEO warns DeFi growth raises user risk.
Third-order effects
- Pseudonymity stops being a reliable property of cryptocurrency: if every historical transaction can be re-analyzed when new tools or data arrive, the industry's structural assumption shifts toward permanent forensic exposure, pushing both criminals and privacy-seeking users toward mixers, offshore platforms, or non-public chains.
- Seizure-led accumulation positions the US as a systematic holder of confiscated bitcoin, creating a standing policy question about how and when the state sells — and giving agencies like the task force launched by US Attorney Jeanine Pirro against overseas scam networks both the funding and the inventory incentive to keep seizing.
The trend: Commercial blockchain forensics is turning crypto's public ledger into standing law-enforcement infrastructure, making the US government itself one of the largest accumulators of seized bitcoin.