Bitcoin is gradually becoming a strategic asset. How to promote its adoption in the context of great power competition?
Once some influential countries adopt Bitcoin, others will follow suit, creating a herd effect.Author: ASXN
Compiled by: Shenchao TechFlow
When Trump spoke to the audience at the Bitcoin Nashville Conference in 2024, he articulated a vision of transforming the U.S. into a global leader in cryptocurrency. At the end of his speech, he made a significant commitment: he pledged never to sell the U.S. government's existing stockpile of 213,000 BTC. He described this massive reserve as the cornerstone of a national strategic Bitcoin reserve.
While this initial statement may be challenged by today's Silk Road transactions, it raises a concept as old as Bitcoin itself—the game theory of inter-state Bitcoin adoption.
Game theory is a mathematical framework used to understand strategic interactions and is a useful tool for analyzing how nations perceive Bitcoin adoption. Generally, it helps us make better decisions in situations of uncertainty or incomplete information. In the specific context of inter-state Bitcoin adoption, studying game theory will help us understand how nations think about innovation, taxation, adoption, regulation, and other important variables.
A country's Bitcoin adoption strategy is best understood through two core concepts in game theory—First Mover Advantage and Payoff Matrix.
First Mover Advantage
Countries that adopt Bitcoin early will enjoy significant advantages (if BTC is successful). These advantages may include becoming a hub for innovation and investment, attracting crypto businesses, and setting global standards for digital currency regulation. However, early adopters also face higher risks, including uncharted regulatory territories and potential economic instability. The earlier a country "acts," the higher the risks and rewards.
Once some influential countries adopt Bitcoin, others will follow suit to avoid being left behind—this will create a bandwagon effect. This effect is driven by the rewards of adoption and the risks of non-adoption. At this point, the Bitcoin adoption cycle enters the steepest part of the S-curve.
Payoff Matrix
In game theory, the payoff matrix helps illustrate the potential outcomes of different strategies. For Bitcoin adoption, each country assesses the costs and benefits of adopting versus not adopting Bitcoin and chooses the best strategy. Clearly, considering the trade-offs of costs and benefits, the dominant strategy is adoption.
In game theory, the best response function refers to the strategy that provides the highest payoff for a player (country) given the strategies chosen by other players. For countries considering Bitcoin adoption, the best response function is the optimal strategy chosen based on the expected actions of other countries and the resulting economic and geopolitical dynamics. The logic is roughly as follows—Country 1 evaluates the cost-benefit trade-off and decides to adopt. Country 1 realizes that all other countries will also choose to adopt, so Country 1 concludes that since all countries will choose to adopt, they should accelerate their adoption to avoid losing their competitive edge.
Slowly, then all at once. (Note: This phrase is derived from the famous writer and economist Ernest Hemingway's works, often used to describe a gradual change process that ultimately leads to a sudden and dramatic result.)
Practical Applications of Adoption Game Theory
To better understand the game theory of adoption, let’s look at a few examples—El Salvador, U.S. states, and MicroStrategy. These examples highlight how adoption game theory is at play at national, regional, and corporate levels.
In 2021, El Salvador became the first country to announce that it would adopt BTC as a reserve asset and legal tender. Since then, the government has accumulated 5,825 BTC, with a market value of $394 million.
In May 2024, Wisconsin became the first U.S. state to announce the purchase of BTC. They disclosed in a filing to the SEC that they had purchased $160 million worth of BTC ETF for their pension fund. While this is not a huge capital investment for a $132 billion pension fund, it demonstrates an understanding of Bitcoin as a savings technology and the advantages of being a pioneer.
MicroStrategy may be a typical representative of first mover advantage. At the end of 2020, Michael Saylor announced plans to purchase BTC and has accumulated 226,000 BTC, accounting for over 1% of the total supply. Although this choice was not well-regarded at the time, Saylor's foresight and patience have created significant value for himself and his shareholders.
What Does the Future Hold for Adoption Game Theory?
At the 2024 Bitcoin Nashville Conference, Bitcoin enthusiast and presidential candidate Robert Kennedy Jr. proposed a more aggressive Bitcoin adoption plan. He plans to purchase 550 BTC daily until the U.S. holdings reach 4 million BTC (19% of the total Bitcoin supply). This would match the U.S. share of global gold reserves.
Although the ideas Trump presented at the Bitcoin Nashville Conference may or may not come to fruition, his public acknowledgment of Bitcoin and its characteristics is a sign of victory, and we have already seen preliminary signs of this.
Expanding the vision to the broader game theory of cryptocurrency adoption, we find that the dominant strategy for the adoption of dollar-pegged stablecoins and the consolidation of dollar hegemony is another example. There are 180 existing fiat currencies, most of which perform worse than Bitcoin. By promoting the adoption of dollar-pegged stablecoins in economies where currencies fail, they will take an important step toward ensuring the global dominance of the dollar.
