) Adoption by governments and businesses remains a questionable topic, and the “digital gold” thesis was heavily criticized after Tesla sold 75% of its assets in the second quarter of 2022.
Larger organizations that buy or sell bitcoin have always been interested in seeing how close countries are to using cryptocurrencies as a store of value. Currently, the average purchase price for bitcoin holdings in El Salvador is $45,000, making it a somewhat poor investment.
Regardless of the length of time it takes for adoption by large institutional holders and its subsequent impact on price expectations, one can roughly estimate the floor price for each BTC based on each country’s foreign exchange and gold reserves.
El Salvador may have been the first country to adopt bitcoin as a legal currency, but its 2,381 bitcoin status represents less than 2% of the country’s total reserves. More importantly, the Republic of South America is not among the top 100 countries with the largest GDP.
On the other hand, Jamaica’s population is 56% smaller than El Salvador’s and its international reserves are 30% higher at $4 trillion. Even Trinidad and Tobago, a small Caribbean island nation with the same population as California’s San Diego, has $6.9 trillion in reserves.
What is clear is how small (financially) El Salvador is compared to the total of $15 trillion held by the 160 countries included in the World Bank’s data.
Will other economies be able to buy their reserves at the current bitcoin price of $20,000 and how many coins can each country have depending on the price of BTC?
Can every government match its reserves with bitcoin?
The country’s total reserves, including gold, are stated in US dollars. Source: statisticsanddata.org.
First, $15 trillion is 39 times larger than Bitcoin’s $385 billion market cap at $20,000 per coin. Theoretically, each country would need 750 million BTC to buy back their gold and currency holdings. Even a conservative allocation of 3% would represent 22.5 million BTC, which is more than the total number of coins in circulation.
Also, not every bitcoin is available for sale, and according to forensics company Chainalysis, around 3.7 million bitcoins have been lost since 2009.
This brings the current supply closer to 15.5 million coins, making it even more impossible to allocate 3% using currency reserves at today’s price of $20,000.
Assuming every holder is willing to sell their coins, the minimum average asking price would be $29,000 at a 3% allocation, which is $450 billion.
Age distribution of Bitcoin UTXO. Source: Unchained Capital
However, a more pragmatic approach is needed, given that 3.8 million BTC have not moved in the last three years, meaning the holder was held back during the crash below $4,000 in March 2020 and peaked at $69,000 in November 2021 .coins The modified liquid currently has 11.7 million traders, which means that the minimum average placement price of $450 billion will reach $38,500 per bitcoin.
Here’s Why $38,500 For Bitcoin Would Be A “Good Deal”
The Prisoner’s Dilemma is a typical example of game theory research showing why rational actors refuse to cooperate even when it appears to be in their best interest. Betrayal is the dominant strategy for both parties and the most likely response in all scenarios.
For example, Switzerland alone has $1.1 trillion in foreign and gold reserves, which means that their distribution at a rate of 3% would amount to $33.3 billion. It is inconceivable that a device can withdraw more than a million coins without raising an alarm. It will be more difficult for other countries to find large volumes at similar prices.
For example, on October 8, 2020, the price of bitcoin rose to nearly $11,000 after Square announced a $50 million bitcoin purchase. As recently as February 8, 2021, bitcoin jumped nearly $3,000 in a matter of minutes when reports surfaced that Tesla had purchased $1.5 billion worth of BTC.
In addition, prisoner’s dilemma theory suggests incentives to suppress coordination efforts in terms of price or maximum distribution. Either the country is ahead of others through pre-group purchases, or exceeds the proposed 3% allocation to provide more protection to the balance sheet.
Assuming countries adhere to the $38,500 price cap and every bitcoin transferred in the past three years is up for sale, including foreign and gold reserves, each country will have 2.67 million BTC for China and 1.1 million