In which Balaji gives away at least a million dollars
Also, the dollar is not going to collapse.
Having known Balaji Srinivasan for more than half of my life, I can attest that he is a man of deeply held beliefs who is bold in his business dealings. Thus, if anyone I know was going to bet some pseudonymous internet rando a million dollars on an outcome that is incredibly unlikely to happen, it would probably be Balaji.
It all started when James Medlock, the pseudonymous twitter personality (whom I interviewed on this blog a couple years back) made a joke about hyperinflation:
The joke, of course, is that if the U.S. did enter hyperinflation, $1 million wouldn’t be worth very much, and so Medlock wouldn’t stand to lose much on this bet.
But then Balaji swooped in and actually offered Medlock a $1 million bet!!
Medlock quickly accepted the deal. People rushed forward to stake Medlock the 1 BTC that his end of the bet required. The plan is to put both Medlock’s 1 BTC and Balaji’s $1M in escrow with a third party (possibly business blogger Byrne Hobart), and then give everything to the winner. If Bitcoin is worth less than $1M in 90 days, Medlock gets everything; if it’s worth $1M or more, then Balaji gets everything.
Now, note that this is not exactly the same bet Medlock joked about. “The U.S. enters hyperinflation” is actually a very different thing from “Bitcoin goes to $1M”. It’s perfectly possible that a U.S. hyperinflation would also collapse the price of Bitcoin. But Balaji is ignoring this possibility.
Anyway, from a financial standpoint, this bet is very very bad for Balaji. 1 BTC is worth about $27,000 as of this writing. That means if Balaji “wins” the bet, and Bitcoin goes to $1M, Balaji gave up the opportunity to buy 37 BTC at a price of $27,000. He will thus wind up winning 1 BTC but losing 37 BTC, for a net loss of 36 BTC (or at least $36 million by that point). And if Balaji loses the bet, he loses $1M.
So either way, Balaji is 100% guaranteed to lose money on this bet, no matter what happens. It’s not a risky bet; it’s a sure loser. And unless both the dollar and Bitcoin crash in value, the amount of money Balaji will lose will be a very very large amount.
Why is Balaji making a bet that is sure to lose him money? He claims that he is doing this in order to bring widespread attention to the impending doom of the U.S. financial system and the U.S. dollar, and the switch to Bitcoin as the primary global currency. But this is overwhelmingly unlikely; the scenario doesn’t fit with anything we know about macroeconomic history. Balaji is going to lose his bet with Medlock.
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