Global Bitcoin Adoption Is Still 'In Its 'Infants', But Here's How It Could Accelerate

Global Bitcoin Adoption Is Still ‘In Its ‘Infants’, But Here’s How It Could Accelerate

Bitcoin (BTCAdoption by governments and corporations remains a questionable question, and the ‘digital gold’ thesis Suggested by advocates He faced harsh criticism after Tesla sold 75% of its holdings in the second quarter of 2022.

Larger entities that buy or sell bitcoin have always been moved to see how close countries are to using cryptocurrencies as a store of value. Currently, the average purchase price of Bitcoin holdings in El Salvador is $45,000, which makes it a somewhat unprofitable investment.

Regardless of how long it will take for adoption by large institutional owners and the subsequent impact on price expectations, it is possible to roughly estimate the minimum price for each BTC based on each country’s foreign exchange and gold reserves.

El Salvador may have been the first country to adopt bitcoin as a legal currency, but it 2,381 BTC position It represents less than 2% of the country’s total reserves. More importantly, the Republic of South America is not among the top 100 countries in terms of GDP.

On the other hand, Jamaica has a population of 56% less than El Salvador and its international reserves are 30% higher, reaching $4 trillion. Even Trinidad and Tobago, a small island nation in the Caribbean with the same size of population as San Diego, California, has reserves of $6.9 trillion.

What does become clear is how small El Salvador is (economically) compared to the total of $15 trillion owned by 160 countries. included in World Bank data.

Will it be possible for other economies to buy their reserves at the current bitcoin price of $20,000, and how many coins each country can have depending on the price of BTC?

Can Every Government Match Its Reserves With Bitcoin?

Total reserves of countries, including gold, are in US dollars. Source: Statisticsanddata.org

For starters, $15 trillion is 39 times greater than Bitcoin’s $385 billion market cap at $20,000 per coin. Theoretically, 750 million BTC would be needed per country to redeem its gold and foreign exchange holdings. Even a conservative 3% allocation would represent 22.5 million BTC, exceeding the total number of coins in circulation.

Moreover, not all Bitcoin is available for sale and appreciation 3.7 million BTC lost Since 2009, according to the forensic firm Chainalysis.

This brings the current supply closer to 15.5 million coins, which makes allocating 3% using foreign reserves even more impossible at the current price of $20,000.

Assuming each owner is willing to sell their coins, the minimum average asking price would be $29,000 for a 3% allocation, which equals $450 billion.

Age distribution of Bitcoin UTXO. Source: Unchained Capital

However, a more pragmatic approach is needed given that 3.8 million BTC has not moved over the past three years, which means that the owner was held back during the crash below $4,000 in March 2020 and a peak of $69,000 in November 2021. Thus, the coins The modified liquid currently has 11.7 million traders, which means that the minimum average allocation price of $450 billion will reach $38,500 per bitcoin.

Here’s why $38,500 per bitcoin would be a ‘good deal’

The prisoner’s dilemma is a typical example of a game theory study that shows why two rational agents refuse to cooperate even though it seems to be in their favour. Betrayal is the dominant strategy for both parties, and is the most likely reaction in all scenarios.

For example, Switzerland alone has $1.1 trillion in foreign and gold reserves, which means that allocating them at 3% would amount to $33.3 billion. It is inconceivable that an entity could extract more than a million coins without raising alerts. The remaining countries will have more difficulty finding large quantities at similar price levels.

For example, on October 8, 2020, Bitcoin price soared close to $11,000 After Square announced a $50 million BTC purchase. Recently, on February 8, 2021, Bitcoin Jumped Nearly $3000 in Minutes Reports surfaced that Tesla had bought $1.5 billion worth of BTC.

Further, prisoner’s dilemma theory suggests incentives to suppress coordination efforts in terms of price or maximum allocation. Either a country leads others by pre-group buying or exceeds the proposed 3% allocation to provide more protection for its balance sheet.

Assuming that countries respect the $38,500 price limit and that every bitcoin transferred in the past three years is up for sale, the holdings — taking into account foreign and gold reserves — for each country would total 2.67 million BTC for China and 1.1 million BTC for Japan. Switzerland will own 864,800 bitcoins and the United States will own 558,000 coins.

Note that US currency holdings are not included in the World Bank data, but the Federal Reserve currently holds $8.8 trillion in assets on its balance sheet.

Ultimately, El Salvador’s investment was a big drop, and Bitcoin’s adoption as a global store of value is still in its infancy.

Moreover, game theory will provide incentives for countries to go beyond any agreed limit and not observe price caps, making the $38,500 theoretical estimate very conservative.