How Competition Accelerated Bitcoin’s Rise

Each alternative we make relies on what we need—and what others may do in response. This dynamic is the essence of Sport idea. Sport idea explains how rational gamers anticipate others’ actions to maximise their outcomes.

However what precisely is sport idea, and why does it matter to Bitcoin?

What’s sport idea?

Sport idea helps clarify why folks (or firms or international locations) won’t all the time act in ways in which appear logical or honest. It exhibits how concern, belief, and technique all play a job in decision-making. It additionally gives instruments to design higher methods, like auctions, voting guidelines, or on-line marketplaces, the place everybody can profit extra from making good, strategic decisions.

Mathematician John von Neumann developed the idea of sport idea within the Nineteen Twenties. His first main breakthrough was a 1928 paper on strategic decision-making, the place he launched the minimax theorem. It confirmed that in zero-sum video games the place one particular person wins on the expense of the opposite (corresponding to chess), rational gamers all the time optimize for the worst-case situation. For instance, in a sport like rock-paper-scissors, the optimum strategy isn’t to comply with a sample however to make decisions randomly, stopping an opponent from predicting and exploiting your strikes.

“Sport idea is the examine of how decision-makers work together,” Dr. Matthew Stephenson, Head of Analysis at enterprise capital agency Pantera Capital, informed Decrypt in an interview. “It is a set of instruments to know their conduct,” which he mentioned was normally based mostly on “two key concepts”: decision-makers have targets, they usually reply to the actions of others.

As an illustration, in a sport corresponding to chess the everyday goal is successful; when taking part in the markets, the target is making a living.

“In chess, success requires anticipating an opponent’s strikes; in markets, profitability relies on value adjustments and buying and selling conduct,” Stephenson mentioned. “These two rules—having targets and responding to others—are basic to sport idea and supply versatile fashions to research totally different strategic conditions and predict conduct.”

The Prisoner’s Dilemma

An necessary precept in sport idea is the Nash Equilibrium, a state during which no participant can enhance their end result by altering their technique alone. A traditional instance of the Nash Equilibrium is the Prisoner’s Dilemma.

Within the Prisoner’s Dilemma, two suspects are interrogated individually and should determine whether or not to admit or keep silent. If each keep silent, they obtain gentle sentences. If one confesses whereas the opposite stays silent, the confessor goes free whereas the silent one will get a harsh sentence. If each confess, they each obtain a reasonable sentence. Since neither prisoner can enhance their scenario by unilaterally altering their alternative, confessing should be the Nash Equilibrium that outcomes.

Sport idea additionally distinguishes between zero-sum video games, during which one participant’s achieve is one other’s loss (most video games are zero-sum—there are winners and losers), and positive-sum video games, during which cooperation permits all gamers to profit (two international locations buying and selling sources, leading to a win-win, say).

In economics and finance, sport idea helps analyze pricing methods, market competitors, negotiations, and investor conduct. By modeling strategic interactions, sport idea gives insights into decision-making in aggressive and cooperative environments.

How sport idea components into Bitcoin

Stephenson defined that Bitcoin’s adoption, when seen by the lens of sport idea, is primarily pushed by its position in stopping fiat debasement. Governments can print cash, making a “cash phantasm” the place spending happens earlier than devaluation is realized. Bitcoin counters this with a set provide, eradicating inflationary manipulation.

“Bitcoin is sort of a blowtorch,” Stephenson mentioned, that means it acts as a strain mechanism. “In case you assume everyone seems to be completely rational, then simply the opportunity of Bitcoin being extensively adopted forces others to behave—whether or not or not it occurs. The mere menace of a decentralized, non-state-controlled forex can affect monetary establishments, central banks, and firms to regulate their methods in response.”

Bitcoin’s 21 million cap rewards early adopters, who profit most as demand grows, whereas late adopters pay extra—creating a powerful incentive for early funding, as seen in Bitcoin’s rise from a distinct segment asset within the 2010s to mainstream recognition by 2025.

Bitcoin sport idea in motion: the MicroStrategy playbook

Whereas it’s changing into widespread to listen to about firms investing in Bitcoin, the primary main non-crypto associated firm to launch a devoted Bitcoin funding technique was Virginia-based know-how firm MicroStrategy, spearheaded by its Co-Founder and Chairman Michael Saylor.

MicroStrategy made its first funding in August 2020, buying $425 million value of Bitcoin. By February 2025, MicroStrategy’s Bitcoin treasury had reached 471,107 BTC, round $49.32 billion.

That was the technique.

MicroStrategy’s persevering with buy of Bitcoin triggered a aggressive FOMO impact, and shortly firms together with Tesla, Japanese agency Metaplanet, well being know-how firm Semler Scientific, and KULR Know-how Group purchased in.

That was the response.

These two issues—technique and response—illustrate sport idea in motion, as firms weigh the danger of steadiness sheet devaluation in opposition to the benefit of adopting Bitcoin earlier than opponents.

“My greatest guess is that, for many firms entering into Bitcoin, it’s arduous to see these strikes as greater than a model play,” Stephenson mentioned. “Essentially the most strategic transfer, past simply wanting Bitcoin folks to suppose they’re cool, is addressing traders who hold asking, ‘What are you doing with new tech? What are you doing with crypto?’ Holding Bitcoin satisfies them.”

Some corporations, Stephenson continued, may use such buys to affect the market.

“Perhaps not with Bitcoin, however with different property—making a splash, driving up costs, and abruptly holding one thing extra invaluable,” he mentioned. “Whether or not they promote or not, the chance is there.”

From an financial perspective, nonetheless, Stephenson remained skeptical of the explanation why firms that make a product would announce holding Bitcoin.

“Firms that produce actual items and providers shouldn’t be taking part in at crypto or finance investing,” he mentioned. “That cash ought to return into their enterprise or to traders.”

Nation-state sport idea: first-mover benefit in Bitcoin reserves

It’s not simply firms leveraging sport idea with Bitcoin—nation-states are additionally partaking, albeit otherwise from people and companies.

Nation-states could face limitations of their means to outmaneuver their adversaries and act stealthily, resulting from components like consultant authorities and the necessity for transparency—making it tough for them to build up Bitcoin with out anybody figuring out.

In 2021, El Salvador formally turned the primary nation to make Bitcoin authorized tender. From a sport idea perspective, El Salvador took a first-mover benefit by embracing Bitcoin. El Salvador sought to draw investments, and cut back reliance on the U.S. greenback. First-mover benefit refers back to the aggressive edge gained by being the primary to enter a market or undertake a brand new know-how.

First-mover benefit additionally gave the perceived notion that it might be helpful to maneuver to El Salvador whereas international locations like the USA continued to cope with regulatory uncertainty.

Three years later, within the lead-up to the 2024 U.S. presidential election, Bitcoin turned a political challenge. Each Donald Trump and former Vice President Kamala Harris made overtures to the Bitcoin neighborhood. One among Trump’s guarantees was the creation of a Bitcoin strategic reserve, a transfer championed by outstanding Bitcoiner, Wyoming Senator Cynthia Lummis.

Managing Director of Swan Bitcoin Personal Shopper Companies, John Haar, informed Decrypt that forming a strategic Bitcoin reserve will rely upon how the U.S. manages the Bitcoin it already holds.

“The U.S. holds about 200,000 Bitcoin, making it one of many high authorities holders,” Haar mentioned. “They may argue, “We have already got the biggest publicly identified holdings, so our place is stable.”

Nations compete by diversifying their reserves, Haar defined, including whereas the U.S. monetary system stays steady, Bitcoin is rising as a impartial financial asset.

“Even when the U.S. doesn’t want it, holding a big reserve could possibly be a strategic benefit,” he mentioned.

Haar argued that Bitcoin’s sport theory-based design creates a self-reinforcing system that’s extremely proof against assaults or makes an attempt at centralized management because of the large quantity of sources essential to assault the community successfully.

“If the community detects malicious actors making an attempt to achieve hash energy, the sincere actors can improve their hash charge to boost the bar even greater for the attackers,” Haar mentioned.

Winners and losers: what occurs to late adopters?

Whereas sport idea has winners and losers, Haar cautioned in opposition to contemplating investing in Bitcoin a zero-sum sport. Not like a set pie, the place one particular person’s achieve comes at one other’s expense, Bitcoin’s worth can develop over time and, with broader adoption and market enlargement, can profit a number of members as a substitute of a single “winner.”

Haar challenged the concept new Bitcoin patrons are one way or the other deprived as a result of early adopters profited.

“I do not consider that is the framework we needs to be utilizing,” he mentioned. “In case you apply it to different, much more standard property than Bitcoin—actual property, Google inventory, the S&P 500, or any tech inventory—folks don’t normally suppose that manner.”

As a substitute, he argues that investing in any invaluable asset—whether or not Bitcoin, actual property, or shares—needs to be seen as a forward-looking choice slightly than a missed alternative.

“So long as Bitcoin stays an asset for storing wealth, the meme model of this concept applies: The perfect time to purchase Bitcoin was in 2011 when it first hit $1. The second-best time is at the moment,” he mentioned. “As soon as you work it out, you get on board—that’s all you are able to do.”