They can't seize the money because they can't get the password. Apparently the police has somehow made sure that he can't access his funds.
I wouldn't be so sure, all he needs is a backup of his wallet
The police don't even need the backup. All they need to do is to threaten the dude with a far longer sentence, enough to scare the dude to hand over access. Dude's actually lucky that this is in Germany; if it was in a 3rd world country with a unethical and immoral government, I wouldn't even be surprised if torture is going to be their option.
That's why you shouldn't tell people you have any bitcoin.
Bitcoin? Aint that the scam market thing people buy drugs with? I dont know anything about that officer.