The bizarre bitcoin bet that lost Balaji Srinivasan $1 million
A pseudonymous leftist Twitter account won $1 million from crypto investor Balaji Srinivasan over a bet on US inflation.
The account’s handle, @jdcmedlock, is nominally assigned to one James Medlock, but that isn’t the user’s real name. To their 83,000-odd followers, Medlock tweets frequently about economics, which is how they became embroiled in their bet with Srinivasan in March.
The bet was announced after Medlock tweeted that he’d bet anyone $1 million that the US wouldn’t enter hyperinflation. Srinivasan, who had been warning about the risk of hyperinflation, took him up on the bet, setting a term of 90 days.
Technically, the bet wasn’t precisely based on US hyperinflation. Rather, Srinivasan bet that bitcoin—which he views as a hedge against inflation—would be worth $1 million at the end of 90 days, its value rising as inflation spiraled upwards. Srinivasan did not seem to consider the possibility that bitcoin’s value might also be wiped out in a hyperinflationary environment, the economics writer Noah Smith wrote on his blog.
Unfortunately for Balaji Srinivasan, inflation is headed down
With the Federal Reserve bent on taming prices and cooling the economy, hyperinflation was a distant prospect. The bet was extremely unlikely to go in Srinivasan’s favor.
“The joke itself was that, in the event of hyperinflation, the million dollars wouldn’t be worth very much anyways, so it was a no-lose situation,” Medlock told Quartz over email. “But hyperinflation is extremely rare, usually happening in times of conflict or institutional collapse. With the US dollar being the global reserve currency and our institutions being relatively stable, hyperinflation today would be without precedent. In fact, a banking crisis might end up being deflationary, as the loss of deposits would reduce demand.”
The bet was set on March 17, but it was settled early. Srinivasan did not immediately respond to a request for comment about why he had paid out well before the 90-day term, but it appeared to be his way of making a point. “I spent my own money to send a provably costly signal that there’s something wrong with the economy, and that it’s not going to be merely a financial crisis, but a fiat crisis,” Srinivasan wrote in a blog post.
Medlock, a self-described “tax enthusiast,” plans to pay an effective tax rate of 70%. Taxes on the winnings will only total $240,000, but Medlock has already given $500,000 of the money to GiveDirectly, a poverty charity. Srinivasan gave an additional $500,000 to bitcoin core developers, bringing the bet’s total value to $1.5 million.
Medlock has plans for the rest of the money. “I’ll pay off some debt, build a nice cat house for my neighborhood feral, and invest in a much better investment than BTC, namely low-fee index funds.”
