Balaji and Medlock bet that the price of Bitcoin will hit $1 million? Is hyperinflation coming? Let's talk about how Bitcoin will hit $1 million in 90 days? What is hyperinflation? Will Bitcoin hit $1 million?
This is limited to my personal understanding. If there are any errors, please point them out for discussion.
I believe that many people are paying attention to the million-dollar bet between Balaji and Medlock today. The reason for this is that Balaji, the former CTO of Coinbase, a famous Silicon Valley investor, a core fan of Bitcoin, and the proponent of the Internet nation, retweeted a tweet from Twitter co-founder Jack Dorsey: [Hyperinflation is happening, and this will change everything] and commented that Jack is right, hyperinflation is coming, buy Bitcoin and withdraw it from the exchange
Then a man named James Medlock made a bet of $1 million that the US would not enter hyperinflation. Balaji responded by saying that if the price of Bitcoin exceeded $1 million within 90 days, Balaji would win the bet. This seemingly "impossible event" became a hot topic in the entire market. So, under what circumstances would Bitcoin exceed $1 million?
Spinach believes that one of the biggest possibilities for the price of Bitcoin to exceed $1 million is the occurrence of a very serious financial crisis. The hyperinflation of the US dollar has caused the US dollar to depreciate sharply, prices have soared, and the purchasing power of the US dollar in everyone's hands has been diluted, causing the price of Bitcoin in US dollars to exceed $1 million. The current situation facing the United States also conforms to the atmosphere created by the various materials supplemented by Balaji.
I believe everyone knows that the recent series of bankruptcies such as Silicon Valley Bank have caused people to panic about the risks of the centralized financial system. If we look back at the financial crisis in 2008, the Federal Reserve launched a series of rescue plans to print money, but the Fed’s rescue policy did not fundamentally solve the potential problems of the financial system, such as excessive leverage, opaque financial instruments and lack of supervision. It only pushed the problem to the future to a certain extent.
When we look back at what Satoshi Nakamoto said in the Bitcoin Genesis Block: "The Times 03/Jan/2009 Chancellor on brink of second bailout for banks", against the backdrop of the 2008 financial crisis, many governments and central banks implemented large-scale rescue plans in an attempt to stabilize the financial market, but in reality this led to a bigger mine being buried for the future, which also implies Satoshi Nakamoto's distrust of the existing financial system.
It is the panic that has spread in the market recently and some recent actions in the United States, such as Buffett and the Biden team discussing how to deal with the banking crisis, that have caused many people to distrust the centralized financial system. This has also led to a wave of market hype about the Bitcoin narrative. We can see that while bank stocks have plummeted, Bitcoin has risen against the trend, which has also triggered discussions on whether Bitcoin is a risky asset or a safe-haven asset.
It is precisely this rampant panic and everyone's concerns about hyperinflation that have made Balaji's bet the focus of everyone's attention. In the eyes of Bo, this whole incident is actually a marketing event for Bitcoin by Balaji using market sentiment. It only cost $1 million to stimulate the market's sentiment to buy Bitcoin. It is believed that Balaji's profit from the increase in Bitcoin will be far greater than $1 million. Why do you say that?
What is hyperinflation? Simply put, it means that the purchasing power of a currency has depreciated significantly. The most typical example is Zimbabwe. In 2008, the official inflation rate in Zimbabwe was estimated to be over 11,200,000%. During this period, the Zimbabwean government issued the world's largest denomination of 100 trillion Zimbabwean dollars, and this 100 trillion Zimbabwean dollar could not even buy a roll of toilet paper.
In addition to small countries like Zimbabwe, there have also been large countries in history that have experienced inflation caused by the collapse of their currency systems, such as the Russian ruble crisis in 1998. To put it simply, the Russian government was unable to repay its debts due to a series of unfavorable factors, which led to a sharp depreciation of the ruble and domestic economic difficulties. At that time, the ruble plunged sharply, and it is said that the depreciation was even more than 100 times (Binhua did not find specific data)
We know that the Federal Reserve has chosen to raise interest rates and shrink its balance sheet in order to stimulate the economy during the pandemic and reduce inflation, but do you know how much money has been printed? If we look at the Federal Reserve's balance sheet, you will find that the amount of money printed by the Federal Reserve during the 2020 pandemic exceeds the total amount of money in human history! The total amount of money printed by the rescue plan for the 2008 financial crisis also seems a bit small on the table!
Therefore, everyone's concerns about hyperinflation are not groundless. Just as Jack Ma mentioned in his speech at the Bund Financial Summit, the Fed's massive money printing during this epidemic will have an impact on the future far beyond our imagination. Moreover, we have no way of knowing what mines have not exploded in the existing financial system, and we don't know where the future human monetary system will go.
But regarding whether Bitcoin will reach 1 million US dollars within 90 days, the idea of gambling is 99.99% that it will not happen (leaving 0.01% for fear of being slapped in the face), why?
If we use the inflation caused by the Russian ruble crisis to predict a systemic crisis in the US financial system that will lead to a sharp depreciation of the US dollar, it is actually wrong. The US dollar is the most special currency in the world because the United States has dollar hegemony. If there is a problem with the ruble, it is Russia's problem, and if there is a problem with the dollar, it is the whole world's problem because the dollar can pass on inflation to the whole world.
We can assume that if there is a problem with the US dollar system in the next 90 days, the US dollar will face the risk of a substantial depreciation. If it really comes to this, the whole world will need the United States to clean up the problem. Why?
Because the U.S. dollar is the world's most important reserve currency and settlement currency, it plays a pivotal role in international trade and financial markets. A sharp depreciation of the U.S. dollar will have a serious impact on the global economic system. Let me give you a few examples:
International trade is hindered: The depreciation of the US dollar means that the legal currencies of other countries appreciate, and many countries' exports and imports are settled in US dollars. The depreciation of the US dollar may cause fluctuations in the export prices of these countries, thereby affecting export revenue. At the same time, the prices of imported goods may also change, affecting the import costs of various countries.
The value of reserve currencies declines: Many countries hold a large amount of their foreign exchange reserves in U.S. dollars. A depreciating dollar means that the value of these countries’ foreign exchange reserves will decrease, posing a threat to the stability of their economies and financial markets.
Currency war risk: In order to cope with the pressure brought by the depreciation of the US dollar, countries may take measures to devalue their own currencies to maintain export competitiveness. This may lead to a global currency war and ultimately undermine the international economic order.
Therefore, once the US dollar faces the risk of hyperinflation, the whole world needs to take action to save the dollar, just like the Plaza Accord signed by the five major industrial countries (the United States, Japan, Germany, France and the United Kingdom) in 1985, with the aim of lowering the exchange rate of the US dollar through coordination among governments.
The background at that time was that in 1971, the United States abolished the fixed exchange rate link between the dollar and gold under the Bretton Woods system, causing the exchange rate of the dollar against other currencies to float. In the following period, the exchange rate of the dollar against other major currencies fluctuated greatly. At that time, the Federal Reserve adopted a series of tight monetary policies, but in the end the US trade deficit widened and the domestic economy was under pressure. The high exchange rate led to obstacles to US exports and relatively cheap prices for imported goods. This caused the US trade deficit to continue to expand, which put great pressure on the US manufacturing industry.
So in order to solve this problem, the US government sought to reach an agreement with other major economies to adjust the exchange rate of the US dollar. At that time, these five countries mainly intervened in the foreign exchange market through their central banks. Specifically, these central banks bought US dollars with their own currencies to increase the supply of US dollars. When the supply of US dollars increases, its value will decrease, so that the exchange rate of the US dollar will be lowered. This is also a typical case of "wiping the ass" of the United States.
The Plaza Accord also brought some unexpected consequences, such as the Japanese asset bubble and Germany's impact on the European monetary system. Therefore, as the world's main reserve currency, the US dollar has a special status in the international monetary system. The exchange rate fluctuation of the US dollar not only affects the US economy, but also has an important impact on other countries and the economic order of the world as a whole.
In summary, Balaji's gambling incident is more like a marketing event that uses market sentiment to hype the narrative of Bitcoin. It is almost impossible for Bitcoin to break through $1 million in the next 90 days because the United States has the hegemony of the US dollar. Even if there is a risk, the United States will drag the whole world to bear it together. However, the collapse of various centralized financial systems now also means that we cannot fully trust the existing centralized financial system to protect our property security.
This is also one of the significances of the birth of Bitcoin. In this world full of lies and deception, if we cannot trust the existing centralized financial system, we can still trust the blockchain system. Holding Bitcoin may be the best hedge against this chaotic world. In the financial crisis that may come in the future, we may witness Bitcoin playing an important role. Spinach does not want to see the day when Bitcoin reaches $1 million, because it is unknown what the world order will look like at that time.