The report titled “The Game Theory of Bitcoin Adoption Among Nations” by ASXN, a crypto research firm, explores how countries can strategically adopt Bitcoin through the lens of game theory. The analysis follows Donald Trump’s announcement at the Bitcoin 2024 conference that the US government would convert all its BTC holdings into a “strategic Bitcoin stockpile”. Game theory is a discipline that evaluates strategic decisions made by individuals or entities under conditions of uncertainty and competing interests. According to ASXN, game theory provides a structured framework to predict outcomes of nation-level strategies in adopting digital currencies, considering economic benefits, technological advancements, and potential geopolitical shifts.
Countries that act as first movers in the Bitcoin arena may benefit from setting precedents in legal and regulatory frameworks, attracting global crypto enterprises, and securing a significant share of the blockchain innovation landscape. However, the report also highlights the risks of premature regulatory frameworks and Bitcoin’s market volatility, which could pose substantial risks to national economies. The bandwagon effect may come into play once influential nations adopt Bitcoin, leading other countries to follow suit to avoid being left behind. This effect is driven by the returns to adoption as well as the risks of non-adoption, marking the steepest part of the Bitcoin adoption cycle.
The ‘Payoff Matrix’ is a fundamental tool in game theory used by ASXN to analyze countries’ decision-making processes regarding Bitcoin adoption. This matrix helps countries assess potential returns and risks associated with strategic choices based on economic structure, political climate, and market dynamics. Additionally, the concept of the ‘Best Reaction Function’ is introduced to explain how nations develop strategies by anticipating the decisions of other countries. A nation’s strategy is influenced not only by its direct gains from adopting Bitcoin but also by the expected actions of other nations, which may alter the global economic and technological landscape.
Real-world applications are used to illustrate theoretical concepts discussed in the report. The case of El Salvador is examined in detail to show how its early adoption of Bitcoin has influenced other nations’ perceptions and strategies. Other examples include Wisconsin’s pension fund investment in Bitcoin ETFs and MicroStrategy’s substantial commitment to cryptocurrency, reflecting trends of sub-national entities and corporations incorporating Bitcoin into their financial strategies. The report also looks ahead to potential future trajectories of Bitcoin adoption, considering technological advancements and evolving geopolitical dynamics, such as Robert Kennedy Jr.’s proposal to acquire a large amount of BTC daily until the US amasses a significant portion of the total available supply.
The Bitcoin game theory is already unfolding, as seen in responses to Trump’s announcement at the Bitcoin 2024 conference. Johnny Ng, a member of Hong Kong’s Legislative Council, has been advocating for the city to incorporate Bitcoin into its financial reserves following Trump’s statement. The acknowledgment of Bitcoin’s properties by influential figures like Trump has already had effects, with BTC trading at $66,660 at the time of the report’s release. Overall, the report by ASXN provides valuable insights into how nations can strategically adopt Bitcoin using game theory principles.
