The Global “Prisoner’s Dilemma” of Crypto.
With exponential buzz surrounding cryptocurrencies, many individuals have begun seeking investments in such currencies with hopes to rack in a fortune or simply hedge against inflation. As a result, we have recently seen these currencies enter another “bull-run” with all the major crypto’s trading at a higher than typical volume level. As a result of such increased buzz, other nations have begun to question a potential adoption of such currencies, especially after El Salvador’s decision. Specifically notable, is a bill that has recently passed in Ukraine focused on legal regulation of Bitcoin throughout the nation. In fact, the passage of the law was nearly unanimous, with 98% of lawmakers voting in favor of it. With such a recent legislature, it has led many to ponder whether Ukraine will soon legalize bitcoin as a monetary tender. As a result of El Savador’s actions and the possibility of Ukraine becoming a home to large crypto miners, such actions have seemed to shape into a game of prisoner’s dilemma focused on global crypto adoption.
As seen in the figure provided by the Nasdaq below, in the scope of cryptocurrencies, nations may choose to either buy or not buy such crypto. In the case of both nation’s deciding not to buy any, they avoid any trade-offs with their centralized banking system simply remaining as it was prior. However, in the comparison of El Savador to another nation, that action remains impossible, causing immediate nations to make a decision of whether or not to adopt such currency. In the case of comparison purposes, I will use Guatemala, a neighboring nation to El Savador in Central America. If Bitcoin continues on the trajectory it has within the past few years (+57% YTD), it is undoubtedly certain that early adopters will rack in a fortune off the currency. Thus, as seen in the payoff matrix below, if Guatemala (Nation B in this scenario) chooses not to buy the currency it would be poor in comparison to El Savador. On the other hand, if Guatemala does choose to buy the currency in similar volume, it will avoid El Savador having a monetary monopoly.
Overall, if crypto currencies continue to see the same year over year returns as they historically have, nations who adopt such currencies will see monetary returns exceeding nearly any other asset type. If such a situation plays out, a game of prisoner’s dilemma will be apparent in which nations who did not adopt the currencies will be “poor” in the light of other nations.
Source: https://www.nasdaq.com/articles/ukraines-blueprint-to-bitcoin-adoption-2021-09-13