Balaji Srinivasan, a prominent investor, and entrepreneur, recently predicted that the United States would see hyperinflation in 90 days and the price of Bitcoin would rise to $1 million within that period. Needless to say, the prediction has stirred up debate.
I’ve tried to condense Balaji’s argument, as I understand it, into the following:
Pro Balaji’s Prediction
Hyperinflation will occur in the United States in 90 days, and the price of Bitcoin will rise to $1 million within that period. Due to the Federal Reserve’s actions, the banking system is insolvent, and the US dollar is on the verge of collapse.
The first argument suggests that the banks have used deposits to purchase long-term US Treasuries and other bonds, which have been devalued due to the flood of printed money in 2021. This claim is supported by references to the Federal Reserve's report, FDIC, and Bank CPAs. To make matters worse, regulators have allowed banks to hide their insolvency in footnotes, which creates significant risks for depositors.
The second argument suggests that short-term Treasury bills, which offer close to a 5% interest rate, are a trap, and most fiat bank accounts are now a trap. The argument claims that anyone who bets on short-term Treasuries will face significant losses in 2023, making Bitcoin a better alternative for investment. The Federal Reserve's sudden interest rate hikes have created the current banking crisis. This situation has left investors with few options, and buying Bitcoin and getting coins off exchanges is the only solution.
Balaji suggests that Bitcoin is the only reliable alternative to fiat currency. Bitcoin is decentralized and not subject to the whims of a central authority like the Federal Reserve. It is also not subject to the same risks as traditional investments, such as the risk of inflation or the risk of being seized by a government.
The best way to fully understand Balaji’s argument is to go straight to the source.
In response, someone like Paul Krugman might write something like this in The New York Times:
Against Balaji’s Prediction
The prediction made by Balaji Srinivasan should be taken with a grain of salt. While it is true that there are concerns about the solvency of the banking system and the actions of the Federal Reserve, the claim lacks concrete evidence. It is based on a flawed understanding of economics and monetary policy.
The argument put forward by Balaji is centered around the idea that the banking system is insolvent and the US dollar is on the verge of collapse due to the Federal Reserve's actions. However, this claim is unfounded and ignores the fact that the US economy is still strong, and the Federal Reserve has tools to control inflation. The Federal Reserve's actions were necessary to prevent an economic depression, which has not caused hyperinflation yet. Moreover, the banks' investments in long-term US Treasuries and other bonds may have decreased in value due to the flood of printed money, but they are still profitable investments in the long run.
The argument that short-term Treasury bills are a trap and that buying Bitcoin is the only solution is flawed. While it is true that short-term Treasury bills may not be as profitable in the short term, they are still a safe investment and a crucial part of a diversified portfolio. On the other hand, Bitcoin is a highly volatile asset subject to market fluctuations and lacks regulation and oversight. The recent high-profile hacks of major Bitcoin exchanges have highlighted the risks associated with investing in Bitcoin, and investors should exercise caution.
The claim that the current banking crisis is caused by the sudden interest rate hikes by the Federal Reserve is misguided. While the interest rate hikes may have contributed to the current crisis, they were necessary to prevent inflation and ensure the long-term stability of the US economy. The Federal Reserve has tools to control inflation, such as adjusting interest rates, and it already did so by hiking rates in 2021.
While there are concerns about the solvency of the banking system and the actions of the Federal Reserve, the US economy is still strong, and the Federal Reserve has tools to control inflation. Investing in short-term Treasury bills is a safe and crucial part of a diversified portfolio. Investing in Bitcoin is a risky and unregulated asset that should be cautiously approached.
That feels like a Krugman column, no? At least a draft. The besties had a discussion about this on the most recent All-In Podcast. It’s worth a listen.
See you in 90 days.
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