The Bet Heard Round the World

Balaji Srinivasan and James Medlock have agreed to a wager for one million dollars. The bet: Bitcoin’s price will reach one million dollars by June 17th, 2023. Balaji believes hyperinflation is imminent which will catapult the cryptocurrency into the stratosphere. James is sure hyperinflation is not in the United State’s future.

The United States banking system has experienced significant turbulence in recent weeks. Silicon Valley Bank was subjected to a bank run which it did not endure. Signature Bank was shut down by regulators early the next week.

The Federal Reserve and Secretary of the Treasury enacted new measures to prevent a banking crisis. The public has been reassured the banking system is sound. Balaji isn’t buying it. He believes total regulatory failure has occurred, and banks now have more liabilities than assets.

This sets the stage for Bitcoin to shoot for the moon over the next three months. Bitcoin’s price was ~$26k when the bet was made. It must increase to 38 times this price to satisfy the wager.

But a 3800% increase isn’t even possible in 90 days. Is it?

Gamestop

GME (Gamestop) was trading around $13 per share on December 9, 2020. The company had been struggling with declining sales and store closures. Large hedge funds like Melvin Capital Management took up short positions, sensing Gamestop was facing further trouble.

While the big hedge funds were anticipating healthy returns from shorting an unhealthy company, a growing number of retail investors began investing in the company. A subreddit called WallStreetBets took up arms against the hedge funds and strategized a short squeeze. Soon, the number of retail investors buying GME became legion.

On January 28, GME hit an intraday high of $483 per share, a 3700% increase in less than 50 days. Melvin Capital lost billions of dollars as a result, while many retail investors made life-changing profits. Gamestop’s moon shot ended when Robinhood, a popular trading app with the WallStreetBets crowd, disabled the ability to buy GME. This caused the price to fall 75% before the day’s close.

There’s plenty of controversy surrounding the Gamestop saga. However, it demonstrates a 3800% increase over 90 days not unfathomable. Furthermore, this occurred in a financial environment with low inflation. Inflation during this time was 1.4%.

Balaji is warning the world that much higher rates of inflation are imminent. He’s not the first to warn against the dangers of central banking, unsound monetary policies, and inflation.

End the Fed

Ron Paul mounted a presidential campaign in 2008. While he did not win the election, he did make a sound investment. That investment has been compounding for 15 years. What was it? Teaching the American people the dangers of a welfare/warfare state which has the ability to print unlimited amounts of money. He campaigned to end both the Federal Reserve and the Internal Revenue Service.

“The most sinister of all taxes is the inflation tax and it is the most regressive. It hits the poor and the middle class. When you destroy a currency by creating money out of thin air to pay the bills, the value of the dollar goes down, and people get hit with a higher cost of living. It's the middle class that's being wiped out. It is most evil of all taxes.”

Ron Paul - December, 2007

One critical measure of a monetary system's soundness is the inflation rate. A low and stable inflation rate indicates the value of the currency is being maintained over time. U.S. inflation spiked to 9.1% in June of 2022, but it’s begun a slow descent since then. Balaji contends this will reverse upwards at a fast pace, thanks to massive insolvencies at U.S. banks.

Bitcoin’s inflation rate is currently 1.76%. It will never rise above 2% again. Instead, it will drop to 0.85% around May of next year.

What happens when inflation spirals out of control?

Hyperinflation

Hyperinflation is an inflation rate greater than 50% per month. We’re going to need to move faster.

Starting from the Bitcoin price of $26k, the price needs to double more than five times over 90 days. That's less than 18 days per doubling. The Cato Institute has a working paper on world hyperinflations. They’ve documented 22 cases where prices doubled in less than 18 days. Over half of those occurred in the last 30 years! Hyperinflation is not a rare event. It’s common.

Bitcoin’s current market cap is $540 billion. It would need to reach a market cap of $21.5 trillion by June 17th for Balaji to win. The total amount of money in the US banking system, as measured by M2, is $21.3 trillion. This includes cash, checking and savings deposits, and other time deposits. It represents the amount of money that is readily available to be spent in the economy.

But Bitcoin is a worldwide phenomena. The rest of the world will want in if their local currencies are also experiencing hyperinflation.

Hyperinflation at rates seen in recent decades would provide massive liquidity. Would people seek out “digital gold” in the form of Bitcoin? If so, a meteoric rise in price would ensue. But there are other assets which people flock to in times of crisis: gold, land, art, and physical goods.

Regardless of how this plays out, there are reasons to be wary.

Concerns

I don’t have answers to these questions, but I hope to stimulate discussions around the following:

• How do we onboard a billion people with trillions of dollars and other currencies into Bitcoin?

• How do we get the older generations, who are more hesitant to adopt this technology, to participate? They have more capital to move into Bitcoin.

• How do we ensure free markets are preserved, when crypto onramps are being disassembled?

• Will the establishment portray a flight to Bitcoin as anti-American?

• Will hyper-Bitcoinization result in additional wealth consolidation, and a new elite?

• Is there a way to mitigate the pain of a hyperinflation for the average person?

Life will become more challenging if hyperinflation hits. The financial can has been kicked for years. At some point, U.S. money printing will catch up to us all. Inflation rates show this has begun.

Conclusion

Balaji needs a miracle to win this wager in such a short timeframe. But cracks in the U.S. financial system are starting to widen.

Bitcoin is a monetary system of the people, by the people, and for the people. A worldwide sound money’s impact on humanity is incalculable.

July 4th could be a celebration of our declaration of financial independence from central bankers.

Balaji has activated the BitSignal. It’s time for everyone to stack Sats.