How Competition Accelerated Bitcoin’s Rise

Every choice we make depends on what we want—and what others might do in response. This dynamic is the essence of Game theory. Game theory explains how rational players anticipate others’ actions to maximize their outcomes.

But what exactly is game theory, and why does it matter to Bitcoin?

What is game theory?

Game theory helps explain why people (or companies or countries) might not always act in ways that seem logical or fair. It shows how fear, trust, and strategy all play a role in decision-making. It also provides tools to design better systems, like auctions, voting rules, or online marketplaces, where everyone can benefit more from making smart, strategic choices.

Mathematician John von Neumann developed the concept of game theory in the 1920s. His first major breakthrough was a 1928 paper on strategic decision-making, where he introduced the minimax theorem. It showed that in zero-sum games where one person wins at the expense of the other (such as chess), rational players always optimize for the worst-case scenario. For example, in a game like rock-paper-scissors, the optimal approach isn’t to follow a pattern but to make choices randomly, preventing an opponent from predicting and exploiting your moves.

“Game theory is the study of how decision-makers interact,” Dr. Matthew Stephenson, Head of Research at venture capital firm Pantera Capital, told Decrypt in an interview. “It’s a set of tools to understand their behavior,” which he said was usually based on “two key ideas”: decision-makers have objectives, and they respond to the actions of others.

For instance, in a game such as chess the typical objective is winning; when playing the markets, the objective is making money.

“In chess, success requires anticipating an opponent’s moves; in markets, profitability depends on price changes and trading behavior,” Stephenson said. “These two principles—having objectives and responding to others—are fundamental to game theory and provide flexible models to analyze different strategic situations and predict behavior.”

The Prisoner’s Dilemma

An important principle in game theory is the Nash Equilibrium, a state in which no player can improve their outcome by changing their strategy alone. A classic example of the Nash Equilibrium is the Prisoner’s Dilemma.

In the Prisoner’s Dilemma, two suspects are interrogated separately and must decide whether to confess or stay silent. If both stay silent, they receive light sentences. If one confesses while the other stays silent, the confessor goes free while the silent one gets a harsh sentence. If both confess, they both receive a moderate sentence. Since neither prisoner can improve their situation by unilaterally changing their choice, confessing ought to be the Nash Equilibrium that results.

Game theory also distinguishes between zero-sum games, in which one player’s gain is another’s loss (most games are zero-sum—there are winners and losers), and positive-sum games, in which cooperation allows all players to benefit (two countries trading resources, resulting in a win-win, say).

In economics and finance, game theory helps analyze pricing strategies, market competition, negotiations, and investor behavior. By modeling strategic interactions, game theory provides insights into decision-making in competitive and cooperative environments.

How game theory factors into Bitcoin

Stephenson explained that Bitcoin’s adoption, when viewed through the lens of game theory, is primarily driven by its role in preventing fiat debasement. Governments can print money, creating a “money illusion” where spending occurs before devaluation is realized. Bitcoin counters this with a fixed supply, removing inflationary manipulation.

“Bitcoin is like a blowtorch,” Stephenson said, meaning it acts as a pressure mechanism. “If you assume everyone is perfectly rational, then just the possibility of Bitcoin being widely adopted forces others to act—whether or not it happens. The mere threat of a decentralized, non-state-controlled currency can influence financial institutions, central banks, and corporations to adjust their strategies in response.”

Bitcoin’s 21 million cap rewards early adopters, who benefit most as demand grows, while late adopters pay more—creating a strong incentive for early investment, as seen in Bitcoin’s rise from a niche asset in the 2010s to mainstream recognition by 2025.

Bitcoin game theory in action: the MicroStrategy playbook

While it is becoming common to hear about companies investing in Bitcoin, the first major non-crypto related company to launch a dedicated Bitcoin investment strategy was Virginia-based technology company MicroStrategy, spearheaded by its Co-Founder and Chairman Michael Saylor.

MicroStrategy made its first investment in August 2020, purchasing $425 million worth of Bitcoin. By February 2025, MicroStrategy’s Bitcoin treasury had reached 471,107 BTC, around $49.32 billion.

That was the strategy.

MicroStrategy’s continuing purchase of Bitcoin triggered a competitive FOMO effect, and soon companies including Tesla, Japanese firm Metaplanet, health technology company Semler Scientific, and KULR Technology Group bought in.

That was the response.

These two things—strategy and response—illustrate game theory in action, as companies weigh the risk of balance sheet devaluation against the advantage of adopting Bitcoin before competitors.

“My best guess is that, for most companies getting into Bitcoin, it’s hard to see these moves as more than a brand play,” Stephenson said. “The most strategic move, beyond just wanting Bitcoin people to think they’re cool, is addressing investors who keep asking, ‘What are you doing with new tech? What are you doing with crypto?’ Holding Bitcoin satisfies them.”

Some firms, Stephenson continued, may also use such buys to influence the market.

“Maybe not with Bitcoin, but with other assets—making a splash, driving up prices, and suddenly holding something more valuable,” he said. “Whether they sell or not, the opportunity is there.”

From an economic perspective, however, Stephenson remained skeptical of the reasons why companies that make a product would announce holding Bitcoin.

“Companies that produce real goods and services shouldn’t be playing at crypto or finance investing,” he said. “That money should go back into their business or to investors.”

Nation-state game theory: first-mover advantage in Bitcoin reserves

It’s not just corporations leveraging game theory with Bitcoin—nation-states are also engaging, albeit differently from individuals and businesses.

Nation-states may face limitations in their ability to outmaneuver their adversaries and act stealthily, due to factors like representative government and the need for transparency—making it difficult for them to accumulate Bitcoin without anyone knowing.

In 2021, El Salvador officially became the first country to make Bitcoin legal tender. From a game theory perspective, El Salvador took a first-mover advantage by embracing Bitcoin. El Salvador sought to attract investments, and reduce reliance on the U.S. dollar. First-mover advantage refers to the competitive edge gained by being the first to enter a market or adopt a new technology.

First-mover advantage also gave the perceived notion that it would be beneficial to move to El Salvador while countries like the United States continued to deal with regulatory uncertainty.

Three years later, in the lead-up to the 2024 U.S. presidential election, Bitcoin became a political issue. Both Donald Trump and former Vice President Kamala Harris made overtures to the Bitcoin community. One of Trump’s promises was the creation of a Bitcoin strategic reserve, a move championed by prominent Bitcoiner, Wyoming Senator Cynthia Lummis.

Managing Director of Swan Bitcoin Private Client Services, John Haar, told Decrypt that forming a strategic Bitcoin reserve will depend on how the U.S. manages the Bitcoin it already holds.

“The U.S. holds about 200,000 Bitcoin, making it one of the top government holders,” Haar said. “They might argue, “We already have the largest publicly known holdings, so our position is solid.”

Countries compete by diversifying their reserves, Haar explained, adding while the U.S. financial system remains stable, Bitcoin is growing as a neutral monetary asset.

“Even if the U.S. doesn’t need it, holding a significant reserve could be a strategic advantage,” he said.

Haar argued that Bitcoin’s game theory-based design creates a self-reinforcing system that is highly resistant to attacks or attempts at centralized control due to the tremendous amount of resources necessary to attack the network effectively.

“If the network detects malicious actors trying to gain hash power, the honest actors can increase their hash rate to raise the bar even higher for the attackers,” Haar said.

Winners and losers: what happens to late adopters?

While game theory has winners and losers, Haar cautioned against considering investing in Bitcoin a zero-sum game. Unlike a fixed pie, where one person’s gain comes at another’s expense, Bitcoin’s value can grow over time and, with broader adoption and market expansion, can benefit multiple participants instead of a single “winner.”

Haar challenged the idea that new Bitcoin buyers are somehow disadvantaged because early adopters profited.

“I don’t believe that’s the framework we should be using,” he said. “If you apply it to other, even more popular assets than Bitcoin—real estate, Google stock, the S&P 500, or any tech stock—people don’t usually think that way.”

Instead, he argues that investing in any valuable asset—whether Bitcoin, real estate, or stocks—should be seen as a forward-looking decision rather than a missed opportunity.

“As long as Bitcoin remains an asset for storing wealth, the meme version of this idea applies: The best time to buy Bitcoin was in 2011 when it first hit $1. The second-best time is today,” he said. “Once you figure it out, you get on board—that’s all you can do.”