$40M in Bitcoin Vanishes From U.S. Government Wallet — On-Chain Investigators Trace the Hack

More than $40 million in Bitcoin and other cryptocurrencies has vanished from wallets controlled by the U.S. government, raising serious questions about how seized digital assets are protected. The incident was uncovered through on-chain analysis, proving once again that blockchain transparency can expose wrongdoing even at the highest levels.

Key Takeaways

• Over $40 million in seized crypto was transferred from U.S. government linked wallets
• On-chain data connected the theft to an individual with indirect custody access
• The case exposes weaknesses in government crypto asset management

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How $40 Million in Seized Bitcoin Went Missing

The stolen cryptocurrency was not taken from a private investor or a centralised exchange. Instead, it came from wallets holding digital assets seized by U.S. authorities in past criminal investigations. These wallets included Bitcoin confiscated after the Bitfinex hack, making them some of the most closely watched holdings on-chain.

The largest single transfer identified by investigators occurred in March 2024, when approximately $24.9 million worth of Bitcoin was moved out of a government-linked address. Additional transfers followed, eventually pushing total losses beyond $40 million. At the time, these transactions went unnoticed by the public.

What makes this case especially concerning is the expectation that government-controlled wallets operate under strict security standards. These wallets are assumed to require multiple approvals, strong internal controls, and clear audit trails. Yet blockchain data shows that the funds were moved smoothly, without resistance or visible security barriers.

According to on-chain investigator ZachXBT, the transaction patterns suggest authorised access rather than an external breach. The transfers appeared deliberate, timed, and technically straightforward. This shifted attention away from hacking tools and towards human access and operational oversight.

Because blockchain ledgers are public, the transactions remained visible long after the funds were moved. This transparency allowed independent analysts to reconstruct events and identify inconsistencies in custody management.

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On-Chain Clues and the Exposure of the Suspect

The investigation escalated when the suspected hacker began publicly displaying wealth in private group chats. Screenshots and videos showed large crypto balances being transferred to prove ownership. Crucially, the wallet addresses used in these demonstrations were traceable on-chain.

ZachXBT linked these wallets directly to addresses holding seized assets from the U.S. Federal Bureau of Investigation. The suspect was identified as John Daghita, known online by the alias Lick. Blockchain data connected his wallets not only to the $40 million taken from government addresses, but also to more than $90 million in stolen crypto across multiple incidents.

The identity revelation gained credibility because it relied on verifiable transaction data rather than personal claims. Wallet movements, timestamps, and address relationships matched periods when seized assets were under official custody.

Further scrutiny revealed that John’s father owns CMDSS, a company holding a valid government contract to assist the U.S. Marshals Service with managing confiscated cryptocurrency. Shortly after the investigation became public, CMDSS’s website and social media accounts were taken offline, intensifying scrutiny.

This case demonstrates how blockchain behaviour, combined with careless public exposure, can unravel anonymity. In crypto, identity is often uncovered not through names, but through patterns.

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What This Case Reveals About Government Crypto Custody

Beyond the financial loss, this incident exposes a broader structural issue. Governments around the world are accumulating large volumes of cryptocurrency through seizures, yet many lack mature systems for managing digital assets.

Unlike traditional finance, crypto custody depends on private keys rather than bank accounts. If access to those keys is shared, poorly documented, or indirectly delegated, insider risk increases significantly. This case highlights how third-party contractors can become critical points of failure.

It also illustrates the limits of blockchain security. While the technology provides transparency and immutability, it does not prevent misuse by authorised individuals. Governance, oversight, and accountability remain human responsibilities.

For the crypto industry, the episode reinforces the value of independent on-chain investigators. Without public blockchain analysis, this theft may never have been exposed. As state involvement in crypto grows, external scrutiny will continue to play a vital role in maintaining trust.

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Conclusion

The disappearance of $40 million in Bitcoin from U.S. government wallets is a defining moment for crypto custody practices. It shows that no entity, public or private, is immune to operational risk. While blockchain transparency ultimately revealed the truth, it also exposed gaps in how seized digital assets are secured. As governments continue to manage growing crypto holdings, this case will likely influence future standards for access control, auditing, and accountability across the digital asset ecosystem.

FAQ

What was stolen from the U.S. government

Over $40 million in Bitcoin and other seized cryptocurrencies were transferred from government-linked wallets.

Who uncovered the theft

Independent on-chain investigator ZachXBT identified the suspicious transactions using blockchain data.

Was this a technical hack

Evidence suggests the theft involved misuse of authorised access rather than a software exploit.

Why is this case important

It exposes weaknesses in how governments store and manage confiscated crypto assets.

Can blockchain thefts always be traced

Not always, but public ledgers significantly increase the chances of identifying suspicious activity.

Disclaimer: This article is for informational purposes only and does not constitute financial, legal, or investment advice. Cryptocurrency involves risk, and readers should conduct their own independent research before making decisions.