The scary bitcoin million bet against the banking system

Balaji Srinivasan is not just anyone. At age 27 and with two Stanford degrees, he co-founded DNA testing company Counsyl with two colleagues, led it as CEO for 11 years, then sold it for $375 million. At the age of 38, Srinivasan becomes a multi-millionaire. He later served as CTO of the crypto exchange Coinbase and founded other companies, which he also sold. Srinivasan really only stays true to the idea of ​​Bitcoin. And now he sees that the time has come for Bitcoin to really take off.

A harmless shit post from anonymous Twitter user “James Medlock” kicked off the wave. He would bet a million dollars on anyone that there would be no massive currency devaluation in the US. The (smart) joke about it: Should there actually be a huge inflation, both the stake and the profit will only have a fraction of their original value (in terms of purchasing power). On the other hand, if there is no inflation, Medlock will receive a “regular” million (with current purchasing power).

Despite uneven signals, Balaji Srinivasan is snapping the bait: Bitcoin will reach a value of a million dollars in 90 days, he predicts. This corresponds to an increase of 3600 percent. His bet is one million dollars. Medlock, on the other hand, would have to deposit a bitcoin. In three months, on July 17, the account will be settled. Whoever wins gets both.

Bitcoin fans, already eagerly rubbing their hands at the confident announcement, should be warned. Srinivasan paints a bleak picture – an extremely bleak picture. He believes the current banking crisis is forcing the US Federal Reserve to continue printing money. And to an extent that leads to a massive devaluation of the dollar or even hyperinflation.

Hyperinflation is when inflation is 50 percent per month or 1,000 percent per year. The consequences of this would be catastrophic. The price of a cup of coffee would rise from $2 to $22, the rent from $2,000 to $22,000, and insulin would go up to $1,045 instead of $95. In a scenario with such price explosions, people start hoarding goods in bulk – which drives prices up further. The economy is collapsing. Chaos.

According to Srinivasan’s thesis, worried investors would flee to Bitcoin during this process because the number there is limited to 21 million and inflation is impossible. The mother of all cryptocurrencies will prove to be the only safe haven.

Srinivasan’s thesis is not new. It is quite common among the hard core of bitcoin enthusiasts. However, few believe that it will happen so soon. Paul Krugmann, an opponent of cryptocurrencies, even argues in the “New York Times” that in a banking crisis, the exact opposite happens. If a large number takes their money from the banks, it has a deflationary effect. An example of this is the onset of the Great Depression in 1929.

However, Srinivasan faces even more critical headwinds. The bet is nothing more than a clever market manipulation. With the help of his 800,000 Twitter followers and the mass media (guilty as accused), he was able to move the markets with his populist announcement. Since he has a huge Bitcoin fortune, a raise in the low percentage range is enough to offset his bet with the profit. Also: why would Srinivasan deposit a million dollars if it would be wiser to invest it in Bitcoin now?

Anyway. To save Srinivasan’s honor, it must be said: in January 2020, he warned of the outbreak of the pandemic and its catastrophic consequences. In return, he was subsequently insulted as a racist.

In fact, the Bitcoin price has risen since the banking crisis – surprising to many critics. Representatives of the Bitcoin faction, on the other hand, see their theories confirmed. And since Srinivasan’s bet it has gone uphill: from 26,000 to more than 28,000 dollars. The upswing was dampened yesterday when the US Federal Reserve announced it would raise interest rates by another 0.5 percent. Not only does this mean bad news for Srinivasan and the Bitcoin price, it could also spell trouble for other banks with too many government bonds and too little liquidity. It is estimated that some 190 banks in the US are currently in trouble.

Bets on an extreme Bitcoin price have a long tradition in the scene – and are rarely won. Software developer John McAfee graduated in 2017 from probably the craziest. He claimed that he would eat his best bite live on TV if the Bitcoin price did not reach $500,000 in 2020. It turned out differently. John McAfee committed suicide in his cell in 2021. He and the world were spared paying off his gambling debt.