Could making a Bitcoin investment be described as a game of “monetary musical chairs”? Many people believe so, and they have done for a very long time. After all, the 21 million supply cap of game technically means there are 21 million seats available. The standoff is between those that do and don’t buy BTC. This blog will describe how this game works, illustrating how game-theory makes the rational person choose Bitcoin every time.

Bitcoin: The Game

This game has only 21 million seats. All players are allowed to sit in as many chairs as their capital allows them to. As the supply cap of Bitcoin is permanent, any person that decides to buy Bitcoin without any intention of selling, they have permanently filled that seat. However, everything can be bought. Technically, we can only assume that everyone could be convinced to give up their seat, but only for the right price.

Currently, the number of open seats on the bitcoin network is reminiscent of the number of unmined Bitcoins (currently about 3.5 Million), and the number of Bitcoins on the market — which of course, varies based on the price. The higher Bitcoin’s valuation increases, the more willing people will be to offer their chair to the highest bidder.

Let's imagine that Jack is right for a moment. He is right by the way. Between now and "The Transformation", everyone on earth is in a game of musical chairs when it comes to fiat and Bitcoin. A tipping point will come where no one wants fiat any more and everyone wants Bitcoin. pic.twitter.com/5ZmKaDBaSo

— Beautyon (@Beautyon_) March 21, 2018

As time passes, the amount of seats left on the Bitcoin network has steadily decreased.

• 2011: June – November: 5 Months
• 2014: January – May: 5 Months
• 2018: January – Present: 12 Months
• Bitcoin’s entire lifespan: 120 Months

Since Bitcoin first came into existence, there have only been 22 months out of 120 where Bitcoin went through a period of having more chairs available. Other than that, the number of available seats has either decreased or stayed the same.

Everyone is Playing the Game.

At the end of the day, your decision to not buy any bitcoin is just as important as deciding to buy bitcoin and secure yourself a seat. In other words; the 21 million supply cap ensures there is a supply limit to push up against in order for demand to increase. This will rattle demand for fiat countries and they will need to print more of their currency in order to keep it stable. Bitcoin has a regular issuance rate, as well as a finite supply. Because of this, increased demand could only cause prices to go up.

Because of this:

• Purchasing bitcoin when there is less demand always makes sense (Increasing your bitcoin holdings while the price is low).
• The act of not buying any bitcoin is a claim that you don’t believe there will be much demand for Bitcoin in the future. (Or you don’t care for investing or cryptocurrency etc)

The above 2 points are exactly why the term “no-coiner” exists. No-coiner is used to describe the people that have chosen to side with traditional finance, effectively defecting from Bitcoin’s incentive to secure a seat. Thus, if you understand what cryptocurrency is, choosing not to purchase any is believing that no one else will either. Maybe it’s because they don’t believe in the potential for the cryptocurrency, or maybe they don’t care. But choosing not to buy any Bitcoin is all part of the game. There is no option to be agnostic to its existence.

The Prisoner’s Dilemma

To cooperate, or to defect? Commonly used as a basic example in game theory; the Prisoners Dilemma illustrates why two completely rational people may not cooperate, even if it would work in their favour to do so. In this dilemma, two prisoners must make a choice. Will they either cooperate with their friend in hopes that their friend did the same for them? Or do they defect, and save themselves, leaving their friend to more time in prison. (Full story here)

• If both A and B cooperate with traditional fiat currency: Bitcoin won’t get enough of a demand for the price to appreciate. As a result, we won’t see it become the world’s global reserve currency.
• If both A and B defect: Bitcoin will see a significant increase in demand, seeing great appreciation in price. This would see it become the global reserve currency.
• If A defects and B cooperates: Party A will be able to make a Bitcoin investment at a much cheaper price than party B as they were able to buy in sooner. As a result, party B is at risk of being forced to buy in late when many of the 21 million seats are no longer available

If the last point made you scratch you’re head, you’re probably thinking “Well technically, party B never has to buy BTC, so they don’t lose out as Bitcoin didn’t get a sufficient demand. Demand from only 1 / 2 players can’t be enough” Wrong.

The Global Market

This is why the global cryptocurrency market has so much power. This prisoners dilemma refers to the entire global population, thus, we have:

If 30 Million people all defect, while the remaining population all cooperate, then the first 30 Million will be able to purchase cheaper Bitcoin than the remainder of all people, as they got to purchase first

(Apparently, the Bitcoin network has seen 31 million unique addresses either send or receive bitcoin. An inaccurate stat, but something is better than nothing.)
While it’s true, 30 million is only a fraction of the total global population, is 1/2,500th of the world enough to bootstrap the Bitcoin network?

Consider this:

• Some people are able to sit in multiple chairs: Hedge funds, investment firms, governments, central banks and any other entity that preserves capital are able to own far more than their share of Bitcoin (BTC). Everything about Bitcoin attracts tech-savvy developers with vast investment funds that understand the Monetary Musical Chair value proposition that illustrates Bitcoin. As a result, these people move quickly in an act to ensure they have a seat of their own.
• Cryptocurrency is a global market: At this point, you can pretty much find exchanges in every single market. With over 4,000 Bitcoin ATMs all over the globe requiring nothing more than some cash for some Bitcoin, people have 4,000 opportunities to grab themselves a seat. iCE3X and other cryptocurrency exchanges alike give people the opportunity to secure themselves a seat from their computer at home, or from their mobile with our iCE3X Android app.
• The entry requirement to secure a seat isn’t much: For an investment firm, $1,00,000 is pocket change. If someone were to make a bitcoin investment of $1,000,000, they’d secure themselves 286 seats.

The 3 Types of Bitcoin Investment

When looking at it from the same Prisoners dilemma standpoint, there are 3 types of people that invest in Bitcoin and other cryptocurrencies:

The Enthusiasts

The enthusiasts are all in. They believe whole-heartedly in decentralization, Peer-to-Peer exchange, and the world of cryptocurrencies and blockchain technology. Many of these people bought bitcoin early on and have seen large gains, becoming it’s biggest supporters.

The People Influenced by FOMO

These people may understand the true value behind Bitcoin and why it’s so important, but many simply came around after the 2017 bubble and don’t want to be left out when it happens again. Regardless, more importantly, they have a somewhat fiduciary duty to their partners, clients or even themselves in order to ensure they have exposure to a new asset class. Technically, this group is any type of entity that is interested in the preservation of capital. Many of these people may only invest 0.5-4% of their trading portfolio to Bitcoin. It’s important to note that with big investors in the game, that percentage could represent millions of dollars.

NoCoiners

These people fit in the Party that cooperates in the prisoner’s dilemma.  They have either decided that all the news and innovations surrounding Bitcoin and cryptocurrency weren’t enough to motivate them to make a bitcoin investment, or that the whole cryptocurrency world is off their radar and they’ve never heard of it. Either way, traditional finance is where they are most comfortable. These people will stick with stock markets, bond markets, cash savings, and real estate.

"It will be like playing musical chairs, when the first central bank, let's say Switzerland, longs Bitcoin, the music stops and every bank tries to grab one of the few million chairs, Don't be caught without Bitcoin when the music stops." Travis Kling

— Bill Burdin (@btcseminar) October 2, 2018

(Bonus) Forced Bitcoin Purchasers

This is the ‘make it or break it’ point for bitcoin. This is adoption. The people that fall into this category aren’t making a bitcoin investment. Instead, they’re using it in order to complete a specific task. Be that paying a friend, buying an item anonymously or even sending money to family overseas. This represents the utility value of Bitcoin. Bitcoin is highly versatile, so people are able to leverage its P2P transactional capabilities in order to get the same kinds of tasks done they would normally do with fiat currency. This is Bitcoins end-game.

With successful social scaling by forcing people to use Bitcoin, you implement the easiest method of completing someone’s value-transaction task. If we get to this stage, all those who chose to ‘cooperate’ with traditional finance will fall victim to their defecting friends. Eventually, they will become the last purchasers of Bitcoin, in a stage where Bitcoin is far less of an investment and closer to Digital Cash.

As a result, these folk are somewhat forced to join the last group of adopters as they need now bitcoin to pay for a service or product they require. If they were to have bought Bitcoin 10 years prior, they would have got it at a drastically reduced price.

Conclusion

All in all, you’re playing this game whether you like it or not. The decision to invest or not to invest is your play. Cryptocurrency stands to question the whole traditional finance system all while posing a better alternative to it. While there’s a lot of speculation going on right now, the best anyone can do to create a clear picture on whether or not to make a bitcoin investment is to do their homework. There is tons of information on blockchain technology, cryptocurrencies and the effect it could have in the long term. Create your own opinion and make your play.

What will be your play? Will you be making a bitcoin investment? Or will you decide to cooperate with the traditional banking system? Let us know your thoughts in the comments below!

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