The game theory behind bitcoin dominance before 2030
“Objects in mirror are closer than they appear.” In this case, the object is a rapidly approaching bitcoin, and most people are asleep at the wheel.
Game theory, not a crystal ball
E very passing moment contains uncountable moving parts. Physical objects interacting with one another in space—down to atoms and molecules bumping into one another—influence the weather and landscape of our environment in complex ways that we’ve never been able to fully predict with certainty. On top of that, living creatures like us humans roam the Earth, further altering our environment by acting upon the decisions we’ve made. These decisions are produced by a brain with billions of neurons, and by the preferences of a mind built with years of memories and experiences. All this considered, it seems impossible to predict the future.
Every passing moment contains uncountable moving parts. Physical objects interacting with one another in space—down to atoms and molecules bumping into one another—influence the weather and landscape of our environment in complex ways that we’ve never been able to fully predict with certainty. On top of that, living creatures like us humans roam the Earth, further altering our environment by acting upon the decisions we’ve made. These decisions are produced by a brain with billions of neurons, and by the preferences of a mind built with years of memories and experiences. All this considered, it seems impossible to predict the future.
Yet, in order to live our lives, we must constantly make attempts to predict the future. We do so, often successfully, by applying a framework of rules and assumptions. You predict that if you go to the grocery store, you will be able to trade for the food you desire. You predict that if you travel there in your car, it will be more efficient than walking. You predict that if you sit in the driver’s seat, you will be able to start your car’s motor. You stop driving at red lights, because you predict that there could be severe consequences if you don’t, and because you predict that if you wait long enough, the light will turn green. Of course, you can’t be certain of any of these things. But you can be confident enough in your predictions, that you would become surprised if they didn’t happen.
The more that a framework can be restricted by rules and reasonable assumptions, the less variables will exist with the possibility of surprising you, and the stronger you can make your predictions. Suppose you are sitting at the dining table with some friends, and the group decides to begin playing a card game. The game has rigid rules, and it is assumed that each player will be attempting to win. Within these parameters, players can often predict each other’s decisions, and demonstrate skill by thinking several moves ahead. A circumstance can arise where you know you are about to win, even before anyone else knows it, based upon public information, or information held privately in your hand of cards, or both.
You know you’re about to win… unless, of course, a meteor crashes down through the roof and destroys the dining table, or any number of other unlikely events occur that didn’t make sense to account for, catching you by surprise. This is the manner in which I make the following claim: “this decade, a trillion dollars will be unable to buy a bitcoin.” I don’t have a crystal ball, and I can’t predict the future with 100% certainty. But I can make a confident prediction within a framework, and share my rationale in an article such as this. I’m about to describe some rules and assumptions, applying game theory (at least in the colloquial sense) to real life, and then explain how close I believe we are to the game’s end.
The rules of the game
All games have rules, and if the “game” is an aspect of real life, then the rules are assertions about reality. Let’s begin with some foundational premises:
1) Humans engage in purposeful behavior, choosing means they believe are best employed to satisfy their most preferred ends.
2) A persistently popular end is to save the value of one’s production for future purposes.
3) People who want to save value for future purposes will choose means that they believe are best employed to do this.
I wouldn’t expect these assertions to draw much controversy. The first comes from the action axiom. The second comes from the common desire for a medium of exchange, to address a lack of coincidence of wants while trading goods and services with other people, as well as from the desire to build savings, to help protect against future uncertainty. The third results from a combination of the first two.
4) Bitcoin’s properties make it the most useful means of saving value for future purposes.
This next premise is undoubtably more controversial within certain circles. I won’t spend too much time on it in this article, but if you need convincing, I recommend checking out my video series or resources page. At a high level, when comparing bitcoin against competing means of storing value (as measured by their desirable properties), bitcoin emerges as the winner. Bitcoin has a hard-capped supply limit that is enforced by each individual user, making it perfectly scarce. Bitcoin’s declining issuance leading up to that supply limit is reliably predictable. These features protect bitcoin savers from dilution more effectively than gold or any other asset. Being digital, bitcoin is also highly divisible and “portable.” And when compared to alternative digital ledgers, bitcoin is the most decentralized, immutable, and resistant to third-party risk.
The main qualm people have with bitcoin is not a property inherent to bitcoin at all—it’s a complaint about contemporary human behavior. Not everyone accepts bitcoin as payment yet, and simultaneously, traders often speculate on bitcoin wildly enough to induce substantial volatility. These phenomenons are to be expected, because bitcoin is still young, not well-understood, and its adoption is far from saturated. Which brings us to the next premise:
5) People who want to save value for future purposes will increasingly choose bitcoin.
This fifth premise is merely a combination of the third and fourth. If someone were to dispute it on the grounds that bitcoin is too volatile, or that bitcoin isn’t widely accepted as payment, they would be using flawed circular logic. It amounts to stating:
“Bitcoin’s adoption cannot saturate because bitcoin’s adoption hasn’t saturated.”
Such a statement would imply that no savings tool could ever be naturally adopted by a society. History proves this wrong. Moreover, the evidence points toward bitcoin adoption making consistent progress over time, demonstrated by its price appreciation.
In Daniel Krawisz’s classic 2014 article “I’m hoarding bitcoins and no you can’t have any,” he explains why the holders (not the spenders) of bitcoin are the users of bitcoin, and therefore bitcoin’s price increasing is a reflection of greater demand to use bitcoin, relative to dollars.
Image credit: @ChartsBtc
In that same article, as well as in another titled “Why bitcoin will continue to grow,” Krawisz points out that as bitcoin adoption increases, the currency network becomes more useful, marketable, de-risked, and attractive. The appropriate circular logic that should be applied to bitcoin is:
“When bitcoin attracts new users, it becomes more valuable, attracting new users.”
Simply put, this “game” is defined by navigating the reality of accelerating bitcoin adoption. Let’s dive deeper into what the gameplay looks like, who is involved, and how it will end.
The game structure, players, and strategies
Who is interested in saving value for future purposes? The answer is, nearly all individuals and all groups. Basically everyone. Because of bitcoin’s supply limit of 21 million coins, everyone will end up competing with one another for a portion of the scarcest savings tool in existence.
The game structure is essentially musical chairs, with approximately 8 billion individuals, 330 million companies, and a couple hundred sovereign states all vying for seats upon 21 million chairs. A small number of players have already taken their seats, but most players are unaware that the game even exists, that they are involved in it, and that the music is stopping.
I’m not the first person to come up with this analogy, but it’s a good one nonetheless. Where I believe this article is original, is in examining a few different types of player profiles, and contemplating their ideal strategies:
Individual adopters. This type of player is someone who has begun using bitcoin as a means of saving, essentially buying some surface area real estate among the seats of the 21 million chairs. Typically, this player will be motivated to encourage their friends and family to recognize the quieting music and secure some seat surface area as well, for their own protection. In the public square, apart from friends and family, this type of player will usually be a loud advocate for bitcoin to anyone who will listen, because they know that increased demand for seats means increased value for the seats they’ve already secured.
Individual deniers. This type of player can’t seem to wrap their head around bitcoin, or can’t come to terms with the fact that they’ve been dead wrong about bitcoin. They’re in for a rough ride. As bitcoin continues to appreciate, this player will grow more frustrated until they either capitulate and become an adopter, or they start demonizing adopters, blaming them for throwing the world into chaos (“Why did you people begin this game? It’s all your fault!”). In the later case, their strategy is likely to petition their government to criminalize bitcoin and/or introduce socialist policies in a desperate attempt to forcibly redistribute bitcoin.
Individual ignorers. This type of player doesn’t want to hear the music, see the chairs, or think about bitcoin. Whatever they’ve heard about bitcoin previously, they’ve dismissed with agnostic skepticism. This describes perhaps the largest cohort of individuals at the time of writing this article. However, as more players begin sitting down, the open seats start disappearing, and bitcoin becomes harder and harder to ignore, this player group will become extinct, its members falling into the adopter group or denier group.
Companies and NGOs. Successful companies are often managed by people who understand the need for adapting to new situations and technologies. Because of this, it’s improbable that this player group will behave like the “denier” group, and will instead play the game in a similar manner as the “ignorer” or “adopter” groups. However, they differ in that they are likely to have a more covert and tempered bitcoin acquisition strategy than individual adopters. Companies don’t want to alarm investors or regulators, nor do they want to anger customers that might be bitcoin deniers. An approach we’ve seen from a number of companies so far, is to begin acquiring relatively small chunks of bitcoin in the name of “diversification.”
Sovereign states. Sovereign states are a more complicated player group, because they have several, somewhat conflicting considerations. In the game of bitcoin musical chairs, a state’s primary goal should be the same as all of the other players: to secure as much seating area as possible. However, a state may have a special interest in not just securing as much bitcoin as possible, but securing particularly more bitcoin than rival states, as a matter of national security. This means that a state may not want to openly announce its intentions of serious bitcoin accumulation, nor leave evidence of such accumulation, because either action could prompt rival states to begin taking bitcoin more seriously. Therefore, a strategy involving privately acquiring bitcoin over time in amounts low enough to stay under the radar, would make sense. Rather than going to market directly, building data centers to secretly mine bitcoin is a possible approach to put this strategy into action.
The other tricky aspect for a state to navigate is its relationship with its own citizens. Most states issue fiat currencies and enforce them as legal tender, granting the state tremendous influence over the behavior of its constituents. It’s unlikely that a state would be eager to forfeit such power. This creates additional incentive for a state to keep quiet about endorsing bitcoin. In fact, it may lead some states to impose legal restrictions and capital controls for people using bitcoin within its jurisdiction. This would prove to be a mistake, as bitcoin industry innovation and accumulation would simply move offshore, into the hands of rival states. Therefore, a public-facing strategy of silent indifference, neither encouraging nor discouraging bitcoin, could make sense.
States without a native currency. This player group is a special one. While most states enforce their own native currency, several do not, either by choice or through monetary colonialism. Countries like East Timor, Ecuador, El Salvador, Panama, and Zimbabwe use the U.S. dollar. Fourteen African countries use the CFA franc, and a number of non-EU countries use the euro. Most of these states wouldn’t be decreasing their stately powers by abandoning the foreign currency and switching to bitcoin—in fact, it would help them become more independent. Therefore, a sensible strategy would be to leverage this threat to the extent they see fit, before ultimately adopting bitcoin anyway, just like El Salvador and the Central African Republic have already done. Upon openly committing to bitcoin adoption, states will likely be louder bitcoin advocates than companies, because they are sovereign and won’t have to worry about their own regulators.
How the music stops
Now that we’ve covered the game structure, the players and some potential strategies, let’s discuss the manner in which I expect it to end. Will it be a gradual process of people casually taking seats in the circle of bitcoin chairs? Will the music slowly get quieter, over the course of years or even decades, allowing for older generations who don’t understand bitcoin to be replaced by younger generations who grew up with it? Let’s call this Theory A. Or will it end with sheer panic—the music suddenly stops, reality sets in, and everyone is sent scrambling, rushing, and tripping over each other to put ass-to-chair? This shall be Theory B.
Theory A seems predicated on recognizing that there is a huge population of people who appear nowhere close to ready for adopting bitcoin. In particular, the baby boomer generation is not only massive, but controls a lot of the world’s capital. Many of them are comfortably retired and aren’t choosing to spend their time keeping up with all of the latest trends and technologies. Certainly, most of them are uninterested in (and unprepared for) making a radical change to their means of storing the value of their past production. If this group, among others, is unwilling to adopt bitcoin, it might seem untenable that bitcoin adoption saturates in the near-term.
However, I believe Theory A is flawed, and Theory B will prevail. The mistake being made by proponents of Theory A, is that they are failing to assign the correct level of importance to the different player groups. Specifically, the individual ignorers and individual deniers are basically irrelevant in this game, when compared to the sovereign states. If the heads of state in Washington, Beijing, Moscow etc. begin to aggressively seat themselves among the remaining chairs, bitcoin isn’t going to wait for you to catch up, nor your grandma, nor that charming old fellow a few doors down the road who calls you for help with operating his television.
While I mentioned that it might be a sensible strategy for sovereign states to accumulate bitcoin slowly and privately, it seems inevitable that eventually a state will decide to get more aggressive, especially if it feels it is substantially lagging behind its rivals. With aggressive bitcoin accumulation being difficult to hide, there will be no point in pretending anymore—a state that plans to start making visibly large purchases, has nothing to lose by making those purchases really large. As large as possible, in fact. And if that state possesses the power to create as much of its own fiat currency as it wants to, a currency that it knows will soon be supplanted by bitcoin… the temptations become clear. The state can print fiat currency, offload it onto its enemies in the foreign exchange market, and load up on bitcoin.
Before a state decides to completely cannibalize its own currency, it is likely to cash in on its remaining credibility with foreign states, engaging in speculative attack. By borrowing whatever foreign fiat currency it can get its hands on, and then sending that currency to the open market in exchange for bitcoin, the foreign state will be forced to bear the brunt of the effects. This type of rude behavior is also available to the other player types. Companies and individuals are bound to join in to the extent possible, taking loans in deteriorating fiat currencies (easy to pay back later should the need arise), and using the capital to lock up more bitcoin.
These “dirty tricks” of money printing and predatory borrowing are indeed blatant acts of economic warfare. As a state is traded back its own fake money (fiat) from people attempting to siphon out the real money (bitcoin), it will be forced to react. Physical retaliation should be seen as futile. Victims of such monetary attacks would gain nothing from launching a military offensive against the perpetrating rival (which now has much greater wealth as measured by the savings mechanism that everyone else is desperately seeking). The most straightforward course of action for the victim would be to engage in the exact same behavior in self-defense, at the first sign of their rivals doing it. It shouldn’t be difficult to see how this could spiral into contagion; a chain-reaction of states recognizing the situation and simultaneously cashing in their remaining credibility for all of the bitcoin they can muster.
Therefore, I believe the music stops as soon as a geopolitically-significant state begins deploying such tactics. The impetus could be as simple as a major oil producer demanding bitcoin as payment for access to its petroleum reserves, rather than fiat currencies hot off the printing press. A fairer trade, after all: scarcity for scarcity. The veil will be lifted, the charade concluded, and that which has been seen cannot be unseen. “No one wants your pieces of paper, sorry.” The only rational response: “Oh crap, I don’t have enough bitcoin!”
The ensuing chaos could be frightening, perhaps amusing in retrospect. The weakest fiat currencies will be the first to fall at the hands of “magic internet money,” followed quickly by the stronger fiat currencies of governments assumed to be nearly omnipotent. As the world simultaneously experiences hyperbitcoinization, it won’t matter whether individual ignorers and individual deniers are “ready” to adopt bitcoin, they will be forced into adopting it by the natural causes of the marketplace. As fiat becomes abundant at an accelerating pace, it will be sought after by no one, and approach worthlessness. Meanwhile, bitcoin will be sought after by everyone. The price of a bitcoin, as measured by fiat currencies, will reach infinity, because there will be no one left to trade with. That is, someone might offer you a trillion dollars for your bitcoin, and you would refuse that offer.
It’s important to remember that none of this is bitcoin’s fault. Bitcoin itself won’t be the root cause of the chaos, it will merely be exposing the root cause. The underlying problem is that society has been getting scammed for decades by states issuing bad money.
When the music will stop
The remaining question is in regards to time frame. Bitcoin has been around now for 15 years, and the theory of its rapid world domination has been around for a while as well, as shown by some of the writings I linked to earlier in this article, which are approaching 10 years old. While it hasn’t happened yet, the trend towards it happening has continued, leaving no reason to believe the logic is flawed.
Since those writings, circa 2014, bitcoin has grown orders of magnitude stronger. There are many more users, adoption from a handful of S&P 500 companies, and two small states declaring it as legal tender. The rate of new issuance from mining bitcoin has been perfectly in-line with expectations, declining 75% over the course of two pre-programed halving events.
Meanwhile, the situation surrounding fiat currencies has only grown more precarious. The U.S. dollar, representing the strongest of fiat currencies, has seen its M2 money supply double, in-line with no one’s expectations other than the bankers who control it. U.S. federal debt has tripled, and the federal deficit has more than quadrupled. It’s not a fair fight, and the results reflect it: the value of a bitcoin has surged 7,500% as measured by the value of a dollar.
With every passing moment, the likelihood of the music stopping increases. While some bitcoin advocates throw out predictions like 10, 15, or 20+ more years until bitcoin is the dominant means of saving value in the world, I find such suggestions nearly inconceivable. I wouldn’t be surprised if the music stops this year. This month. This week. Tomorrow. Today?! I find myself sharing the amusing concern of Krawisz:
“Now one of my biggest fears in writing about bitcoin is that my predictions will come true before I can publish them.”
It seems that we are only one small catalyst away from the world tumbling into a bitcoin standard. I find it difficult to imagine it failing to occur before the end of this decade. We are currently months away from the next halving event. Historically, bitcoin adoption fervors coincide with halving events, which makes sense given the reduction of new supply without an equal reduction of new demand. The most recent adoption fervor was in 2020-2021, which was actually the least impressive one so far, at a measly 20x dollar price increase from the cycle lows. There are a number of theories for why we saw such “poor performance,” which I won’t get into here, but if we use this historically bad result as a conservative baseline for the next adoption fervor, we would be looking at $300,000 per bitcoin, and a total market cap of something like $7 trillion, more than double the value of Apple or Microsoft.
The point is, as bitcoin grows, it becomes harder to ignore, and the companies, states, and other institutions that haven’t yet acknowledged the game will be forced to do so. Some of these wealthy players will panic and start taking their seats, “just in case.” If things don’t spiral out of control in the next wave of adoption, it’s likely that we will see at least one more wave this decade, whether due to the 2028 halving event, or natural supply squeezes. A secondary adoption fervor of 20x would show us a price tag of millions of dollars per bitcoin. Obviously, the game would be over by then. There is no rational scenario where the price of a bitcoin casually hangs out at several million dollars; the world will have caught on to the rules of the game by that point, and when the price of a bitcoin hits such awe-striking numbers, it would only be because it is temporarily passing through them on its one-way ticket to infinity.
Until then, enjoy the music. Enjoy being one of the earliest dancers at a dance party, like the first three guys in the video below, during the 2009 Sasquatch music festival. Although they may seem like weird outsiders at first, they eventually experience an accelerating flood of popularity, providing a perfect analogy for the future of bitcoin adoption.