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.

Account handle, @jdcmedlock, is nominally assigned to a James Medlock, but that is not the user’s real name. To their 83,000 followers, Medlock frequently tweets about finance, and that’s how they became involved in their efforts with Srinivasan in March.

The bet was announced after Medlock tweeted that he would bet $1 million that the US would not go into hyperinflation. Srinivasan, who had warned of the risk of hyperinflation, took him up on the bet and set a period of 90 days.

Technically, the bet was not accurately based on US hyperinflation. Rather, Srinivasan was betting that bitcoin — which he sees as a hedge against inflation — would be worth $1 million at the end of 90 days, increasing in value as inflation spirals upward. Srinivasan did not appear to consider the possibility that bitcoin’s value could also be wiped out in a hyperinflationary environment, economics writer Noah Smith wrote on his blog.

Unfortunately for BAlaji Srinivasan, inflation is coming down

With The Federal Reserve bet on taming prices and cooling of the economy, hyperinflation was a distant prospect. The bet was extremely unlikely to go in Srinivasan’s favour.

“The joke itself was that in the event of hyperinflation, the million dollars wouldn’t be worth that much anyway, so it was a no-lose situation,” Medlock told Quartz over email. “But hyperinflation is extremely rare, and usually occurs in times of conflict or institutional collapse. With the US dollar as the global reserve currency and our institutions relatively stable, hyperinflation today would be unprecedented. Indeed, a banking crisis could end up being deflationary , as the loss of deposits will reduce demand.”

The bet was set for March 17, but it was settled early. Srinivasan did not immediately respond to a request for comment on why he had paid out well before the 90-day deadline, but it appeared to be his way of making a point. “I spent my own money sending a provably costly signal that there is something wrong with the economy and that it is not just going to be a financial crisis, but a fiat crisis.” Srinivasan wmess up in a blog post.

Medlock, a self-described “tax enthusiast,” plans to pay an effective tax rate of 70%. Taxes on the gain will just a total of $240,000, but Medlock has already given $500,000 of the money to GiveDirect, a poverty organization. Srinivasan gave an additional $500,000 to bitcoin core developers, bringing the effort’s total value to 1.5 million dollars.

Medlock have plans for the rest of money. “I want to pay off some debt, build a nice cat house for my neighborhood, and invest in a much better investment than BTC, low-fee index funds.”