I just burned a million to tell you they're printing trillions. pic.twitter.com/pX5622rjUO
— Balaji (@balajis) May 2, 2023
I will take that bet.
— Balaji (@balajis) March 17, 2023
You buy 1 BTC.
I will send $1M USD.
This is ~40:1 odds as 1 BTC is worth ~$26k.
The term is 90 days.
All we need is a mutually agreed custodian who will still be there to settle this in the event of digital dollar devaluation.
If someone knows how to do this… https://t.co/hhPr522PQu pic.twitter.com/6Aav9KeJpe
Balaji is an entrepreneur who ran a string of successful businesses, was the former CTO of Coinbase, and is known for making bold yet eventually true predictions, like when he called out how bad Covid would get months before anyone else.
Balaji believes what happened to Silicon Valley Bank is only the beginning. He believes that every other bank in America is at risk of collapsing the same way, and if people were to start withdrawing their money, the entire banking system would collapse... unless the US government bailed them all out. To bail them out would require the US Federal Reserve to print massive amounts of new money, creating hyperinflation and devaluing the dollar.
The devaluing of the dollar would hurt the US dollar's integrity as a trustworthy currency, and he believes this to be the pivotal moment where the world rushes to protect their life savings by putting it into the only true safe haven: Bitcoin.
Right now, about 19 million bitcoins exist. For bitcoin to reach $1M, we would need about $1M per bitcoin entering the bitcoin market.
$1 million x 19 million bitcoin = $19 trillion
China's GDP in 2021 was $17 trillion which means getting bitcoin to reach $1M would be like if all of China in 2021, instead of buying all the food, cars, houses, services, they normally would have bought, they instead spent all of that money on bitcoin.
Another way to think about it is this. Right now, there is about $700 trillion worth of investment assets like stocks, real estate, and savings in the world. To get $1M bitcoin, you would just need $19 trillion, which is 2.7% of $700 trillion, which means we would get to $1M bitcoin if 2.7% of the world's investments went to bitcoin.
*takes a deep breath*. This is a long one, but I promise it's still a lot easier to digest than other explanations out there. Buckle up.
When Silicon Valley Bank, or SVB for short, collapsed in March, it felt like the crash of 2008 happening all over again. But this time, we couldn't find the reckless and greedy bankers we saw in The Big Short movie. Instead, we found the opposite: SVB had put their money into what was supposed to be the safest possible asset on the planet. US Treasury Bonds.
The problem was that SVB had bought many of those bonds before 2021, which was a long period of low interest rates to help us recover from the housing crash of 2008. But after COVID, all the pent-up demand during lockdowns was released like opening a pressure cooker, causing skyrocketing inflation in 2021 all the way up to 9%, which is 3 times the usual rate we had become used to of around 2-3%.
To the wealthy, this is great news, because the wealthy usually own assets like houses and businesses that benefit from high prices. To everyone else though, high prices mean more of your paycheck is needed to buy the same carton of cage-free eggs you always buy every week from Whole Foods.
If left alone, the country will die. Over time, if inflation stayed high, people wouldn't be able to afford anything anymore, and even a business like Amazon can't survive if it has no one left to click Add to Cart. Money becomes worthless, and we start bartering again, trading cows for magic beans.
So to bring inflation down, the US Federal Reserve raised interest rates, which meant the low interest rate bonds from before were not worth as much money anymore. Usually, this isn't a problem because the bank doesn't need to give the customers back their money right away. These temporary dips in value are only a problem if suddenly all of a bank's customers want to withdraw all of their money immediately, and the bank needs to start selling their assets to give back money to withdrawing customers. But usually there isn't a reason for all of your thousands or millions of customers to suddenly want their money back all at the same time. Unless all of your customers basically talk to each other all day on Twitter.
Pretty much all of Silicon Valley Bank's customers were tech companies or tech investors who all kind of knew each other and lived in the same neighborhoods and hung out in the same place: Twitter. So when a few people noticed that Silicon Valley Bank had reported a drop in value on their bonds and shared it, this created a widespread fear in CEOs and VCs that Silicon Valley Bank was actually insolvent and if you didn't withdraw everything you had in Silicon Valley Bank right now, you wouldn't see your money ever again. People immediately started rushing to transfer out their money, ignoring the pleas of Silcon Valley Bank's CEO to not panic and to support the bank like it has supported its customers all these years.
Collapse was inevitable, and it seemed like aside from the few customers who were able to pull all of their money first, Silicon Valley Bank's fall would take down numerous tech startups with it, foreshadowing widespread unemployment from tech workers who wouldn't be able to see their next paycheck. Other banks also watched in fear, wondering if the end of the bank run on SVB would only mean the start of a new bank run on a new target, perhaps them.
Luckily, to prevent the panic from spreading any further, the US government stepped in and guaranteed depositors that all of their money was safe, restoring confidence in the banking system and nipping the potential for further bank runs.
What's scary about what happened to SVB is that they actually didn't do anything obviously wrong. The mistakes they made are actually quite common and most companies are making them all the time, which is why it's important for us to learn from the SVB saga to try to avoid becoming the next SVB. Sharing some takeaways:
SVB made the mistake of blindly investing in US Treasuries year after year, without questioning whether it was actually the smartest place to put their money. Sure, every other bank was doing the same thing, and sure everyone knows US Treasuries are the safest investment money can buy, but a true professional uses first principles to make their own decisions. If SVB had diversified their portfolio, it's likely they would have never collapsed.
SVB experienced unprecented growth during COVID. With lockdowns in place, people worked from home and took to the internet to distract themselves, and venture capitalists were eager to invest in startups riding the wave of our new way of life. SVB grew by almost twice at a time when most banks were just lucky not to shrink, prompting people to praise SVB's deep ties to tech. However, once interest rates started to rise and the tech industry of Twitter smelled blood at SVB, they descended en masse like a swarm of locusts synchronized through the power of Twitter to withdraw their funds. If SVB had a more diverse portfolio of customers, they may not have grown as quickly, but they would also have likely avoided collapse.
The bank run on SVB would have never happened 30 years ago because it would have taken too long for people to find out that other people are going to withdraw their money. But now with Wwitter, a venture capitalist influencer with a couple hundred thousand followers can publicly suggest everyone withdraws their funds from SVB, and in a matter of minutes, that message could go viral and millions of people will want to withdraw their funds. And because of the internet, withdrawals aren't a drive to the bank anymore. It's just a few taps away on your phone. Anthony Pompliano called this idea "digital catastrophes". Other examples include Gamestop's short squeeze by retail investors coordinating on reddit, and the mass buying of toilet paper during COVID lockdowns. Businesses that can prepare for digital catastrophes will be able to avoid death and profit while their competitors collapse. We'll know with time whether other banks will take action to prevent making the same mistakes.
Bitcoin realtime price provided by CoinGecko API