Are we looking at a Bitcoin arms race?

This is something that I have thought about for a while. We see a number of government entities looking to establish funds to hold Bitcoin. This includes a few national governments such as the United States along with some individual states. On top of this, we could have sovereign wealth funds.

Michael Saylor is the poster child for Bitcoin accumulation, at least by a corporation. MIcrostrategy (now Strategy) is one of the largest BTC holders. Then we have Blackrock, who jumped high on the list via its Bitcoin Spot ETF. Granted, this is held on behalf of the clients but it is still consolidation in the hands of a custodian.

What happens when governments actually start to implement what is being discussed? More importantly, how do things change if we see some success?

In this article, we will dig into the framework of what this might look like.

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A Bitcoin Arms Race?

President Trump made headlines when he proposed making crypto part of the strategic reserve fund for the United States. This was something that El Salvador implemented a few years back. At the time, the US was the first major country to announce plans.

Since taking office, Trump implemented that reserve and established that the US government will not sell the Bitcoin it seizes. However, there is still no legislation that allows for the purchasing of BTC.

Other countries have followed with their own proposals. Then we have a number of states within the US that are looking into following a similar model. So far, nothing concrete has emerged in regards to the law. That said, some are getting closer.

Then we have China which has an on again, off again relationship with cryptocurrency. It is also considering the idea of following the US with regards to Bitcoin.

At the moment, there is a lot of talk. My question is does this turn into an arms race shortly? Could we see a time when a form of FOMO kicks off?

Naturally, the process starts with some approval. For me, I monitor what is taking place with some of the state bills that are being voted upon. If a couple of states approve it, that could set the pace.

The US government passing legislation would be huge. I think that will happen but, judging by the rate which Washington DC operates, that could take a while. We could see state action within the next month or two.

Early Success Kicks Off FOMO

The price of Bitcoin stalled over the last few months. After a nice run, touching $100K, the price has waffled between $85K-$95K. When markets move sideways, the lack of attention span of humans tends to emerge.

Bitcoin is no longer the hot topic it was a couple of months ago.

Of course, we know this will reverse once the next major run kicks off. Then it will be all over the headlines and people will be screaming for Bitcoin to be held by everyone.

When governments are involved, the pace of operations hinders things. Sentiment is down but the legislative process continues. Unfortunately, the latter is often driven by the former. For this reason, the slam dunk of passage that many thought is not as clear.

As they say, it only takes one.

My thoughts are that, if a government entity starts to accumulate Bitcoin as part of its reserve, the first bull run will produce a slew of articles denoting how much the government is up on its purchases. We know price go up draws most of the attention and this will be no different.

Others will start to question why their government isn't doing the same.

Limited Supply

The one thing Bitcoin has going for it is limited supply. This makes it a basic economic question with regards to price. Supply is no consideration, hence the only focus is on demand.

As that goes, so does the price.

Scarcity is a powerful tool. It is something humans are conditioned for. Here is where the "arms race" might take off. Different governments are going to realize they want Bitcoin, looking at the 21 million. As larger governments get involved, if they do, we end up with major HODLers. Do you want to be on the outside looking in?

This is partially an illusion. Since BTC is prices in USD, the global reserve currency, the value per unit can keep going up. It is a situation that is true for assets but human psychology doesn't account for this. People are upset when a stock costs 20% more than it did a month before. Naturally, this leads to them buying now because they do not want to pay another 20% in the future.

Then we have the national psychology. At the top of the list is the US and China. Neither wants the other to get ahead. Many within the US are pushing towards crypto. Thus, it is no surprise China might look at changing their stance. Then we have countries like Japan and the member states of the EU, do they want to be left behind?

Another way to frame this is what happens if the US approves the purchase of up to 5% of the Bitcoin total like some have proposed? What will other entities think about this?

Will China want 7%?

At this point, we can only speculate. However, human psychology tends to be standard. National decisions can result from the collective of the individual thought process. AI is the big race. Bitcoin could be an offshoot of that.

Posted Using INLEO