Game Theory of Bitcoin Adoption by Nation-States

Source: Adobe/Alexey Napalkov


  • “Even if different international locations don’t consider within the funding thesis or adoption of bitcoin, they are going to be compelled to accumulate some as a type of insurance coverage.”
  • The competitors “will more than likely be within the type of mining” Bitcoin.
  • “Countries with the least to lose by way of financial sovereignty are extra open in the direction of adopting bitcoin.”

Is the race on? This is a query that a minimum of some individuals have been asking ever since El Salvador made bitcoin (BTC) authorized tender in September, and with the Swiss metropolis of Lugano doing basically the identical factor originally of March, it’s arguably solely a matter of time earlier than different international locations rush to embrace bitcoin.

This is just about the conclusion reached by a latest report from Fidelity Investments, whose analysts Chris Kuiper and Jack Neureuter wrote that international locations — even people who don’t actually “believe” in bitcoin — might be “forced” to accumulate some ultimately. As Kuiper and Neureuter argue, it’s because the price of not doing so (when others are creating BTC stockpiles) could possibly be extraordinarily steep.

And business figures talking with largely agree with this evaluation, with most affirming that some sort of sport idea is at play right here. And whereas additionally they recommend {that a} race to accumulate bitcoin by nation-states ought to push the cryptocurrency’s value up massively, they remind that the divisibility of BTC gained’t make it too costly for retail traders and customers to accumulate for themselves.

Game idea = Worldwide bitcoin adoption?

Fidelity’s analysts additionally cited sport idea of their report, noting that historical past has repeatedly demonstrated that capital at all times flows the place it’s welcomed essentially the most. Basically, any nation that nurtures innovation (i.e. by buying or adopting bitcoin) will acquire a bonus over its friends, who consequently might be compelled to comply with swimsuit, for worry of being left behind.

As they wrote, “We also think there is very high stakes game theory at play here, whereby if bitcoin adoption increases, the countries that secure some bitcoin today will be better off competitively than their peers. Therefore, even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance.”

Kuiper and Neureuter additionally contended {that a} small price could be paid by nations right now, mainly as a hedge in opposition to a probably a lot bigger price sooner or later. 

“We therefore wouldn’t be surprised to see other sovereign nation-states acquire bitcoin in 2022 and perhaps even see a central bank make an acquisition,” they concluded.

It’s doable that officers from Lugano could have learn this conclusion, with town’s officers signing a deal early in March with stablecoin issuer Tether to encourage companies to simply accept bitcoin (and USDT). Speaking concerning the deal, Lugano Mayor Michele Foletti’s remarks mainly echoed these of Fidelity’s analysts.

“Lugano is investing in its future […] We strongly believe in this technology, the potential to scale the technology […] will build a better and more open, transparent and smart city,” he stated again then.

And should you ask just about any analyst or determine working inside the crypto sector, in response to them, there’s a really excessive chance that different jurisdictions will even flip to BTC and crypto in a technique or one other.

“Countries that adopt Bitcoin first will advantage their citizenry,” Human Rights Foundation’s Chief Strategy Officer, Alex Gladstein, stated.

Samson Mow additionally agrees with the Fidelity analysts, with the CEO of sport developer Pixelmatic additionally citing sport idea in his clarification. (This March, Mow left Bitcoin-focused agency Blockstream, the place he served because the chief technique officer, to concentrate on “nation-state bitcoin adoption”.)

“The game theory around Bitcoin will drive nation-states to compete for Bitcoin acquisition and it will most likely be in the form of mining it. The second-order benefit will be that Bitcoin will lead more nation-states to seek energy independence in order to ensure their Bitcoin mining operations are unable to be disrupted by externalities,” he advised

Indeed, there’s no scarcity of individuals in crypto who’re roughly assured that central banks and/or nation-states must purchase bitcoin to some extent. For Nigel Green, the CEO and founding father of monetary consultancy deVere Group, it’s “almost inevitable,” with a rising quantity doing so within the “near term.”

“Central banks, particularly in countries where there are weaker national currencies, will be witnessing in real-time the benefits of owning digital, global currencies in our increasingly tech-driven, globalized world. We can expect them to be running advanced modeling about what would happen to their economies should they fail to move early,” he advised

Green additionally means that latest geopolitical points, together with the Russian invasion of Ukraine, might be exacerbating the urgency of this transfer, significantly because the case for Bitcoin and cryptocurrency basically is laid naked on a world scale.

However, when trying on the technique of nation-by-nation adoption, some analysts argue that it gained’t be essentially the most developed nations that paved the way.

“As we’ve seen with El Salvador, countries with the least to lose in terms of monetary sovereignty are more open towards adopting bitcoin. I believe we will see the “next Salvador” in Latin America or Africa,” stated Trezor Brand Ambassador Josef Tětek.

The second nation to make critical strikes in the direction of bitcoin adoption could also be much more necessary than the primary one, in response to Tětek, as it’ll affirm the rising development and will add momentum and impetus to the ensuing race.

Priced out by nation-states?

When precisely this can occur might be anybody’s guess, though the macroeconomic (and political) instability of the present interval could speed up the general course of, as some commentators recommend.

And when it does occur, commentators are usually unanimous within the opinion that the worth of bitcoin will skyrocket.

“If a number of countries begin to compete for Bitcoin holdings, we will see a massive increase in Bitcoin price. Bitcoin in the [USD] 30-40k range is incredibly undervalued,” stated Samson Mow. 

No analyst is de facto keen to offer a exact determine, however most say that the rise can be substantial, given how restricted the provision of BTC is.

“Bitcoin price would likely rise massively, mostly because such purchases would greatly increase bitcoin’s legitimacy in the eyes of everyday people. Bitcoin would graduate from an obscure crypto-anarchic money as it’s still largely perceived now, to a serious monetary asset that everyone should consider,” stated Josef Tětek.

As thrilling as this might sound for present holders of bitcoin, it raises the chance {that a} huge rise in BTC would make the cryptocurrency terribly costly for ‘ordinary’ individuals to accumulate. And assuming that it’s adopted by nation-states and made authorized tender, buying it could turn out to be crucial.

However, consultants remind that Bitcoin is extremely divisible, which means it may well accommodate big value rises whereas nonetheless be usable for small transfers.

“As bitcoin’s are divisible into 100,000,000 ‘satoshis,’ even when bitcoin hits USD 1 million, satoshis will only cost around USD 0.01.  So people can buy 1,000 satoshis for just USD 100,” defined Lou Kerner, CEO of funding agency Blockchain Coinvestors.

Of course, it’s possible that we nonetheless have an extended street to journey earlier than bitcoin reaches a value of USD 1 million. If it does all of it. In both case, it gained’t be a clean trip.
Learn extra: 
Russia Sanctions Means Countries May Transition to Bitcoin Reserves – Pantera’s CEO
Ukraine War Raises Questions About the ‘End of Monetary Regime’ and Role of Bitcoin

Panama Eyes Bitcoin & Crypto to Spark Tech Investment
BitMEX Boss: El Salvador-style Bitcoin Adoption on the Cards for five More Nations

Corporations & Countries Watch and Learn From El Salvador’s Bitcoin Experiment
Argentinian Senate Passes USD 45B IMF Debt Deal That Discourages Crypto Use

Bitcoin Mass Adoption Would Benefit and Harm Current Economy}
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‘Developing Economies’ Tracking El Salvador’s Bitcoin Moves with Interest

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