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Bitcoin million-dollar bet ends early, what is the purpose of Coinbase's former CTO Balaji burning $1.5 million?

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Bitcoin million-dollar bet ends early, what is the purpose of Coinbase

Coinbase's former CTO Balaji Srinivasan ended his Bitcoin million dollar bet with Twitter users ahead of schedule and donated more than the initially agreed $1 million. Balaji emphasized that the intention of the Bitcoin million dollar bet was not his firm belief that Bitcoin would quickly rise to a million dollars; rather, he wanted to convey that governments are printing money on a massive scale, concealing the poor state of the overall economy, and cited various data to detail how high the probability is of the U.S. actually defaulting on its debt.

Balaji's Million-Dollar Bitcoin Bet with Twitter User

On March 17th of this year, Balaji reiterated on Twitter the view that hyperinflation is imminent, believing it will benefit Bitcoin's price development, further establishing it as the new world reserve currency.

Twitter user James Medlock, under an anonymous account, held the opposite view, stating that he would bet $1 million that the United States would not experience hyperinflation.

Thus began the million-dollar Bitcoin bet.

(Regarding Balaji's Century Bet: Balaji predicts that a black swan event is imminent, Bitcoin will reach one million dollars within 90 days?)

End of the Million-Dollar Bitcoin Bet, Balaji Pays $1.5 Million

In a tweet on May 3rd, Balaji announced that the $1 million bet contract with anonymous Twitter user James Medlock regarding the Bitcoin price prediction was prematurely terminated by mutual agreement. He also paid $1.5 million, exceeding the initial commitment:

Million-Dollar Bitcoin Bet: BTC Needs to Increase by 3,343% to Reach One Million

As of May 3rd, there are still 43 days left from the agreed 90-day bet period. Bitcoin would need a 3,343% increase to reach one million dollars. Since the bet began, it has only increased by less than 20%. Why did Balaji wager $1.5 million on this seemingly impossible task?

He mentioned several points in a nine-minute video.

Balaji: I Want to Tell You the Government is Printing Money

Balaji emphasizes that governments have been hiding the problems in the financial system from the public. While things may seem fine at the moment, they can turn around very quickly. How quickly? He cited several examples:

  1. Two days: The Federal Reserve's balance sheet increased by about $300 billion within two days due to the Silicon Valley bank crisis.

  2. Two weeks: Regional banks in the United States saw around $500 billion in deposits leaving within two weeks after the Silicon Valley bank crisis.

  3. Two months: The United States had its first case of COVID-19 on January 21, 2020, declared a national emergency on March 13, with almost no warning in between.

  4. Two quarters: During the 2008 financial crisis, Federal Reserve Chairman Ben Bernanke went from describing a "mild recession" on April 10, 2008, to calling it a "global financial crisis" by September 2008.

Balaji believes that many developments can catch people off guard, much like the examples mentioned above, and the economic system could be on the brink of collapse. He makes several points:

1. U.S. Debt Default Crisis

The United States hit a $31.4 trillion debt ceiling in January of this year. Former U.S. Treasury Secretary Lawrence Summers stated that there is a 2% to 3% chance of a technical default in the United States.

The Washington Post also pointed out that while the U.S. successfully navigated the 2011 debt ceiling crisis, it doesn't guarantee the same outcome if faced with it again.

2. Most Banks are Insolvent

Balaji cited Doomsday Doctor Nouriel Roubini's claim that most U.S. banks are technically insolvent, especially as deposit outflows force banks to sell securities to meet massive withdrawals, resulting in banks realizing unrealized losses, making bankruptcy inevitable.

He emphasized that recent bankrupt banks' asset holdings are now similar to those during the 2008 financial crisis.

Stanford report also notes that the banking crisis is far from over, with many banks currently facing up to $2 trillion in unrealized losses.

3. Commercial Real Estate Faces Deep Cuts

Balaji referenced a MarketWatch report where Morgan Stanley suggested that commercial real estate may face a crisis worse than the 2008 financial crisis, with a potential 40% cut.

4. Bond Crisis

Balaji noted that the bond market saw a severe downturn in 2022, its worst performance in years. Not only are banks buying in, but insurance companies also hold a significant amount of bonds, with life insurers having 70% of their investment portfolios in bonds.

He mentioned that in 2008, the U.S. government bailed out the insurance giant AIG for a staggering $182 billion, emphasizing that the collapse of the life insurance industry caught many analysts off guard.

There are more potential crises:

De-Dollarization is Happening

Balaji referenced a Bloomberg report indicating that many countries, including China and India, are gradually moving away from the U.S. dollar, with the euro, yen, and renminbi's adoption rates increasing.

Previously reported, central banks around the world are also heavily buying gold: Gold price nears all-time high: Bank crisis + China reopening, will the rally continue?

What Balaji wants to emphasize is that he believes there is a high probability of the first point, the U.S. debt default, occurring:

  • 10% probability default: within a few months

  • 70% probability default: within a few years

  • 19% probability default: within decades

  • 1% probability default: within centuries

And a Twitter poll shows that it may happen within the next few years.