Toward the end of March 2023, VC and former Coinbase CTO Balaji Srinivasan, a major influence in crypto, bet $2 million that bitcoin would rise from its price at the time, around $25,000, to $1 million per coin within the subsequent 90 days. 

The bet was skewed heavily in favor of its instigator, the pseudonymous leftist Twitter influencer James Medlock. In the wake of purported Federal Reserve plans to backstop the imploding US banking system by as much as $2 trillion, Medlock defiantly offered to bet $1 million to anyone that hyperinflation—when excessive money printing devalues currency—wouldn’t happen

Srinivasan took the bait and the two arrived at terms: Srinivasan would buy $1 million in the stablecoin USDC; Medlock would buy a single bitcoin at market value; and a blockchain-powered smart contract would hold the funds in escrow. If bitcoin hit $1 million, Srinivasan would get the newly astronomical bitcoin and get his $1 million back. If it didn’t, Medlock would get the $1 million in USDC—and keep his bitcoin. (Srinivasan has actually put up $2 million overall, having made the same bet with a second, unspecified counterparty.) 

As of this writing, however, Srinivasan’s prediction has not come true. The price of bitcoin has risen by about $5,000—no small feat, although certainly not attributable to the bet, no matter the huge amount of attention it has garnered.

Critics have derided the bet as a $2 million advertisement for Srinivasan’s own Twitter feed, or a way to spook investors into pumping Srinivasan’s bitcoin holdings to a level far higher than the mere million staked on that bet.

It is also, on the face of it, a risky move. Though Srinivasan is understood to be at least a centimillionaire, the very mechanics of the bet are wildly out of his favor. Medlock stands only to lose the value of a single bitcoin, whereas Srinivasan stands to lose the full $1 million.

As Bloomberg columnist Matt Levine has pointed out, Srinivasan’s bet makes little sense economically. Even if bitcoin does hit $1 million, Levine wrote,  it would have been smarter to spend the original million wagered on 35 bitcoins (at market value) than one massively overpriced one. 

Still, it’s worth investigating Srinivasan’s gamble. His bet on bitcoin is really a bet against the US banking system and the dollar—elements of the global economic system that are certainly under a great amount of stress. Srinivasan’s gripe is a way to explore the economic resentment of the day. Bitcoin is frequently envisaged, correctly or incorrectly, as an inflation hedge, after all.

Why Did Srinivasan Bet on Bitcoin?

In short, Srinivasan thinks that America’s economy is broken. In his own words, “Everything is bust. Banks, commercial real estate, blue states. Hearing rumblings around insurance too. The printing will be on a historical scale. As will the desire to exit the printing.”

As evidence, Srinivasan cites the fallout of a number of major US banks, notably Silicon Valley Bank and the crypto-friendly Signature Bank. The collapse of those banks, and the fear that others will follow, spurred the US Federal Reserve to set up a backstop dubbed the “Bank Term Funding Program,” which analysts believe could inject as much as $2 trillion into the US financial system in the event of further crises at big banks. 

The major consequence of this, Srinivasan believes, is that a deluge of new currency would severely devalue the dollar and send investors flooding elsewhere, including to bitcoin. That asset operates without the oversight of a central bank and has a hard “cap” on the number of bitcoins, at 21 million, that can be minted. That makes it less vulnerable to inflationary printing, Srinivasan believes. Which means his bet is just as much a bet on bitcoin going up as it is on the dollar going down. 

Or as he so lyrically put it: “We’re in a new era // People know banks may abruptly fail //People know regulators won’t warn them beforehand // So people are seeking safe haven //Billions exiting via digital wires // But to where? // Today, big banks and money market funds // Tomorrow, assets without counterparty risk.”

Srinivasan’s bet on bitcoin was widely dismissed after its announcement on account of its craziness. And still, bitcoin’s price slowly rises and the traditional economy’s fate looks ever more dismal. The question may not be whether the bet comes true, but how close to becoming true it ends up.