Outside Source
Nations, companies and blockchain protocols consider Bitcoin reserves as a strategic asset, but there’s game theory hiding behind the decision-making.
Opinion
Opinion by: Luke Xie, co-founder and CEO of SatLayer
Bitcoin’s (BTC) status as a store of value is now firmly established, with a market capitalization of $1 trillion+ for the past year and more than $110 billion held in exchange-traded funds (ETFs) alone. That has converted many skeptics and vindicated diamond-handed BTC hodlers. Bitcoin’s strength has also fueled discussions of strategic Bitcoin reserves (SBRs) worldwide, in the US and major countries, including Germany, Russia and Brazil. More and more companies are also adopting SBRs by putting Bitcoin on their balance sheets, led by MicroStrategy’s massive success. Missing are layer-1 blockchains having BTC as part of their treasury, as they’re typically on the bleeding edge of adoption, here ironically at risk of being “front-run” by traditional nation-states and corporations in having SBRs.
The game theory behind it all
It’s not crypto without game theory! The fun here is that nation-state SBRs are inevitable. The more the US debates and evaluates an SBR, the more seriously other nations must take the idea of a US SBR, which in turn means other nations start accumulating BTC first on the non-zero chance the US adopts an SBR.
This is where the game theory comes in: If other nations wait for the US SBR first, then it will be too late, as the price of BTC will have already risen astronomically, given the amount of BTC needed to be meaningful to the US. It’s better for other nations to start accumulating a small amount of BTC first, as the US adopts a SBR. This is true for all other countries besides the US and creates a high-stakes game of international FOMO.
The SBR game is afoot
El Salvador’s adoption of BTC as a legal tender led to gross domestic product growth, a 95% tourism surge, increased foreign investment, and streamlined remittances and repositioned the nation in the financial world. Overall, it is a wildly successful case study for SBR.
Brazil and Japan are both considering Bitcoin reserves, while China and Russia — despite being publicly anti-crypto — reportedly have had a private change of heart. Waiting for US action may prove too costly for policymakers in these vast economies.
Should nations need a more significant case study, they need only look at the corporate sector, led by visionaries like Michael Saylor, CEO of MicroStrategy. Saylor proved Bitcoin to be a desirable deflationary treasury asset and pioneered an innovative template for institutional BTC adoption.
Ultimately, SBRs offer a unique opportunity to address one of the most pressing challenges faced by the United States: its mounting national debt. By accumulating Bitcoin at scale and leveraging its deflationary store of value properties, the US could solve the coming debt crisis and regain its status as a leader in crypto innovation.
Choosing the future of sovereignty and strategy
In his 2022 book, The Network State: How To Start a New Country, former Coinbase chief technology officer Balaji Srinivasan defines “network states” as social networks with moral innovation, recognized founder(s) and integrated cryptocurrencies, using decentralized autonomous organizations and smart contracts for enforceable change and governance.
Recent: Bitcoin may reach $150K or $400K in 2025, based on SBR and Fed rates
Layer-1 (L1s) blockchain protocols are the closest to network states. Yet there is little noise around L1s adopting SBRs/diversifying their treasuries into BTC. Will network states, which should be at the bleeding edge of innovation and experimentation, be front-run by traditional nation-states when adopting SBRs?
The rationale for network states having SBRs is clear. In bull markets, having a portion of an L1’s treasury in BTC will outperform the risk-adjusted yield on its stablecoin holdings. In bear markets, having a portion of treasury in BTC will outperform the L1’s native token holdings. In addition, this makes the rationale for having wrapped BTC and BTC Liquid Staking Tokens (LSTs) on the L1 much more compelling since it will enable the L1 network state to unlock their BTC treasury holdings to boost their own decentralized finance ecosystem.
The first mover advantage
As is often the case, diversifying holdings into a strategic Bitcoin reserve will favor those who move. Once a major player acts, it’s too late for the smaller players, and the clock is also quickly ticking for their competitors.
America know it can’t afford to wait for China and Russia to move first. Businesses can’t afford to wait for their competition to beat them to it. L1 network states can’t (and surely won’t) afford to wait for competing L1s to move first.
Opinion by: Luke Xie, co-founder and CEO of SatLayer.
This article is for general information purposes and is not intended to be and should not be taken as legal or investment advice. The views, thoughts, and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
This article first appeared at Cointelegraph.com News
