One of the most common arguments against Bitcoin is “they are banning or regulating it”. While this may be a bump in the adoption, I don’t think it is a major risk. Let’s explore some scenarios how state ban/regulation can play out.

  • Draconian scenario - let’s imagine states want to ban Bitcoin and outlaw it and they do that coordinated. So worst possible scenario. I think that even if they try, they will fail and the closest analogy is drugs. Drugs are fought against in all countries. They even execute for selling/taking drugs in some countries. However, did that prevent them from spreading? No. There is by far more drugs around and junkies than ever before. Countries even move towards legalizing some of them as they realise that this battle is lost. And chasing drugs is far easier to chase than chasing Bitcoin. It is not possible to ban Bitcoin completely. Even if you shutdown the internet for some people, you can sync with the blockchain through satellite and transmit transactions through radio and mesh network (still early stages but up and running). And a lot of countries simply don’t have the capacity to enforce rules, even simple ones. For example about 50% of people in my native country Bulgaria cheat on taxes in some form and government can’t enforce even basic taxation. How can they enforce more complex things as who owns Bitcoin to sophisticated players? They can’t. And there a lot countries like that. So, I think even if countries go hard after Bitcoin they wont be able or if they try for some time they will eventually fail and will even help it spread (prove the anti fragility).

  • Regulate and tax scenario - let’s imagine states want to tax it and regulate it. So pretty much an asset class as the others. That’s a very mild variant of the above. This is realistic and is fine. Big players will declare it and pay taxes on realized gains (business as usual for them) and small players will simply avoid it as it will be easy to. You can buy/sell Bitcoin at decentralized exchanges as BISQ and take measures to stay anonymous. And how do you tax anonymous individual HODLers? You can’t.

  • Mixed reaction scenario - some states will be more draconian and others will be more laissez-faire toward Bitcoin. I think this is the most realistic scenario and this is where the game theory kicks in. Some states will embrace the Bitcoin economy and others will try to ban it. However, if the Bitcoin economy really picks up, others will be forced to adjust and join the game as they will be risking to fall behind. What is more, if a significant number of citizens and businesses want Bitcoin, you can’t easily ban it. You would face a lot of pressure if you try to. COVID-19 reaction by different states is a very good example, in my opinion, what stands in front of Bitcoin. The truth is that the world is quite diverse place and you can’t make all states/people simultaneously do one and the same thing.

For the reasons above, I have long ago excluded state ban/regulation as a risk in my view of Bitcoin. What is more, significant number of people/businesses/professional money managers own Bitcoin in USA already. States as Wyoming are also very pro Bitcoin. This makes me think that USA will embrace Bitcoin in some form (although unwillingly). They will for sure try to tax and will require you to declare it in some places but not all (maybe not Wyoming and others). And USA is quite important in what the world does. Still, they set the tone of what the other free/capitalist world does. No one wants to fall behind of what USA does. Game theory at its finest if you ask me. So fear not, Bitcoin is here to stay.