Why Sovereign Nation States May Begin Acquiring Bitcoin In 2022

Bitcoin has grown from being ‘internet money’ used by only a few thousand people during its first few years to being part of the balance sheets of big companies and sovereign states. El Salvador is a case in point for a country that has committed fully to the bitcoin mission, putting millions of dollars into the digital asset as a national reserve.

While bitcoin is still a long way from being the de facto reserve currency of all countries, its growth points to countries not being able to ignore it for much longer. That’s why it is expected that more nation-states will purchase the cryptocurrency in the next year.

In a recent report published by Fidelity, it goes into depth about bitcoin and the role it may play in deciding which countries are the economic leaders of the world. This is because as the asset becomes more widely spread as a reserve currency, the countries who hold bitcoin may see their influence grow higher than those who do not, despite where they might stand today.

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History has always shown that those who are quick to accept innovation and new technology have always ended up faring better compared to those who do not, and that may well be the case with bitcoin and other cryptocurrencies.

Fidelity also refers to it as a “very high stakes game theory.” If bitcoin adoption continues to grow, then those who got in earlier will no doubt be better off than the rest. This will push other countries to also acquire the digital asset as “insurance” so as to not be left behind even if they do not believe in the investment thesis or the adoption of the digital asset.

Basically, sovereign nation-states would purchase bitcoin sort of as a hedge, in case it does end up being important in the future. “In other words, a small cost can be paid today as a hedge compared to a potentially much larger cost years in the future.”

Touching on the ban debate that has raged on in the space, the report explained that banning bitcoin outright would be hard to achieve. Although not impossible, it could certainly lead to a significant loss of wealth and opportunity, it added.

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There is yet to be an all-encompassing bill passed in regards to cryptocurrencies which provides total regulatory clarity. The infrastructure bill which was passed last year and scheduled to go into effect in 2024 continues to be subjected to numerous amendments, and with such a long time frame till implementation, there is no telling where the bill might end up.

However, Fidelity noted in its report that a digital asset regulation being passed into law will be a milestone for bitcoin, stating that “what we think is most notable is that digital asset regulation becoming law is another milestone as the asset class comes of age and establishes itself.”