Author: Luke Xie, Co-founder and CEO of SatLayer
Bitcoin's position as a store of value has been firmly established, maintaining a market capitalization of over $1 trillion for the past year, with exchange-traded funds (ETFs) holding more than $110 billion. This reality has convinced many skeptics and proven the foresight of those who steadfastly hold Bitcoin. Bitcoin's strong performance has also spurred in-depth discussions globally about strategic Bitcoin reserves (SBRs), including in major countries like the United States, Germany, Russia, and Brazil. An increasing number of companies are beginning to follow suit, incorporating Bitcoin into their balance sheets, led by the tremendous success of MicroStrategy. However, what is currently absent is a layer-1 blockchain that incorporates Bitcoin as part of its treasury. Ironically, while these blockchains are often at the forefront of technological innovation, they face the risk of being "outpaced" by traditional nations and enterprises in establishing SBRs.
No game theory means no cryptocurrency world! Interestingly, national-level SBRs have become an inevitable trend. The deeper the discussions and evaluations of SBRs in the United States, the more seriously other countries must consider the possibility of the U.S. adopting SBRs, which in turn prompts them to start accumulating Bitcoin in advance, in case the U.S. ultimately adopts an SBR strategy.
This is where game theory comes into play: if other countries wait for the U.S. to establish SBRs first, it will be too late, as the price of Bitcoin will have skyrocketed given the scale of Bitcoin the U.S. would need. For other countries, the wisest strategy is to start accumulating a small amount of Bitcoin before the U.S. adopts SBRs. This logic applies to all countries except the U.S., creating a high-stakes international game of "fear of missing out."
El Salvador's decision to adopt Bitcoin as legal tender has led to GDP growth, a 95% surge in tourism, increased foreign investment, simplified remittance processes, and has reshaped the country's position in the global financial system. Overall, this is a model case of successful SBR strategy implementation.
Brazil and Japan are both considering establishing Bitcoin reserves, while China and Russia—despite publicly opposing cryptocurrencies—are reportedly changing their stance privately. For policymakers in these economic powerhouses, waiting for the U.S. to act may be too costly.
If countries need more compelling case studies, they need only look to the corporate sector, particularly visionaries like MicroStrategy CEO Michael Saylor. Saylor has demonstrated that Bitcoin is an ideal deflationary treasury asset and has created an innovative model for institutional adoption of Bitcoin.
Ultimately, SBRs present a unique opportunity to address one of the most pressing challenges facing the U.S.—the rising national debt issue. By accumulating Bitcoin on a large scale and leveraging its deflationary store of value characteristics, the U.S. has the potential to resolve the impending debt crisis and regain its position as a leader in crypto innovation.
In his 2022 book "The Network State: How to Start Your Own Country," former Coinbase CTO Balaji Srinivasan defines a "network state" as a social network with moral innovation, recognized founders, and integrated cryptocurrencies, using decentralized autonomous organizations and smart contracts to achieve executable change and governance.
Layer-1 (L1) blockchain protocols are the closest to the concept of a network state. However, discussions about L1s adopting SBRs or diversifying their treasury investments into Bitcoin are quite limited. When traditional nation-states adopt SBRs, will those network states that should be at the forefront of innovation and experimentation be outpaced?
The logic of network states holding SBRs is very clear. In a bull market, allocating part of the L1 treasury to Bitcoin will outperform the risk-adjusted returns of its stablecoin holdings. In a bear market, the Bitcoin portion in the treasury will perform better than the holdings of L1's native tokens. Furthermore, this makes the case for holding wrapped Bitcoin and Bitcoin liquid staking tokens (LSTs) on L1 even stronger, as it would enable L1 network states to activate their Bitcoin treasury reserves, thereby promoting the development of their own decentralized financial ecosystems.
As is often the case, diversifying asset allocation into strategic Bitcoin reserves will benefit the early movers. Once major players take action, it will be too late for smaller participants, and time will be rapidly running out for their competitors.
The U.S. knows it cannot wait for China and Russia to take the lead. Enterprises cannot wait for competitors to seize the initiative. L1 network states cannot (and certainly will not) wait for competitor L1s to act first.
Author: Luke Xie, Co-founder and CEO of SatLayer
Related: Programmable regulation is the missing key to the future legitimacy of decentralized finance (DeFi)
This article is for general reference only and should not be considered legal or investment advice. The views, thoughts, and opinions expressed in this article are solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Original: “Strategic Bitcoin (BTC) Reserves: Not Just for Nations, but for Protocols”
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