According to a new research by Fidelity, there’s a good probability that more sovereign nation-states will buy BTC this year.
Last year was distinguished by opposing events in terms of bitcoin adoption, according to the asset manager’s 2021 review. While it’s too early to say which method was the most effective, the business believes the high-stakes game theory at work will encourage additional nations to follow El Salvador’s lead and adopt cryptocurrency.
Fidelity says yes to BTC
The crypto business has been shaken by massive developments during the last year. Crypto has entered the mainstream thanks to the emergence of NFTs, GameFi, and institutional acceptance, bringing the industry’s market valuation to an all-time high.
Aside from pricing action, government and regulatory recognition had the most influence. Fidelity Investments stated in its 2021 Digital Asset roundup that the regulatory trends witnessed this year couldn’t have been more diametrically opposed.
Throughout the year, China imposed a number of restrictions, including a ban on Bitcoin mining in May and a blanket ban on all cryptocurrency transactions in September. Later that month, it banned all cryptocurrency mining in the nation, thereby putting an end to the robust mining industry.
El Salvador, on the other hand, adopted a completely different strategy. The South American country became the first sovereign nation to recognize Bitcoin as legal cash in September. The government acquired BTC for its reserves as part of its endeavor to promote Bitcoin. It will also issue a $1 billion Bitcoin bond, with half of the proceeds going toward increasing its crypto holdings.
Fidelity believes that China’s attempt to outlaw all crypto-related activities would result in enormous wealth and potential loss. Given the decentralized and anonymous character of digital assets, it is unlikely that the nation will be able to establish an absolute prohibition.
All of this has prompted Fidelity to believe that when it comes to Bitcoin adoption, there is a high-stakes game theory at work:
“If Bitcoin adoption increases, the countries that secure some Bitcoin today will be better off competitively than its peers. Therefore, even if other countries do not believe in the investment thesis or adoption of bitcoin, they will be forced to acquire some as a form of insurance.”
The asset manager feels that purchasing Bitcoin now is a minor price to pay as a hedge against a possibly much higher price in the future. Simply put, the advantages of including Bitcoin in a government’s reserves outweigh the risks that many countries associate with cryptocurrencies.
“We therefore wouldn’t be surprised to see other sovereign nation-states acquire bitcoin in 2022 and perhaps even see a central bank make an acquisition,” Fidelity concluded in its report.
