Ecoinometrics - Why Balaji settled his Bitcoin bet

Waiting for hyperinflation is like waiting for the barbarians

Another bank goes under in the US. With a week like that you’d think Balaji would double down on his $1m Bitcoin bet. Instead he settled. It was all a publicity stunt. 

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Why Balaji settled his Bitcoin bet

About two months ago Balaji made the bet that the banking crisis in the US would soon force the Federal Reserve to print trillions of dollars. That would have had the effect to:

• At least devalue the US dollar by a lot in a short period of time.

• At worst create some kind of default situation of the US government and trigger a period of hyperinflation.

With Bitcoin sitting on the side of the global financial system, operating independently and with programatic monetary policy, it would then become a natural attractor for investors fleeing the failed US$ system. The result on Bitcoin would be worth $1m by June.

I’ve made the following chart to give you a sense of the scale of this bet.

Bitcoin going from its current level to $1m would be equivalent to growing Bitcoin from the market size of Tesla to the entire market size for US Treasury bonds. All that in 3 months.

Needless to say that kind of scenario has a pretty low probability to happen. With one month to go Bitcoin isn’t very from where it started. 

And past Balaji’s initial announcement it feels like the “narrative” impact of this bet run its course pretty fast. Balaji is no dummy so he just took back control of the story and milked it a little bit more by settling the bet early.

This comes at an interesting time (certainly not accidental) where the very bank failures that seemed to have prompted Balaji’s actions are back in the light with the failure First Republic Bank.