In a recent episode of Planet Money, a podcast and blog produced by National Public Radio (NPR), an independent American non-profit media organization, venture capitalist Ben Horowitz and financial journalist Felix Salmon were brought together to discuss the result of a bet on Bitcoin adoption that they made in February 2014 (during another episode of Planet Money).
So, what were the events that led to Horowitz and Salmon’s bet in February 2014 and what were the details?
The Events That Led to the February 2014 Bet
Back at that time, when Bitcoin was trading in the $550–$750 range, Salmon had written an essay titled “The Bitcoin Bubble and the Future of Currency” that was highly critical of Bitcoin. Here is how he started that essay:
“A few days ago, the value of all the bitcoins in the world blew past $1 billion for the first time ever. That’s an impressive achievement, for a purely virtual currency backed by no central bank or other authority. It’s also temporary: we’re in the middle of a bitcoin bubble right now, and it’s only a matter of time before the bubble bursts.”
Horowitz is a co-founder of American venture capital firm Andreessen Horowitz. Shortly before the publication of his essay, his firm had invested around $50 million in Bitcoin-related startups, and being the Bitcoin that he was, naturally, he was upset by what Salmon had written, and so he posted a comment by which he challenged Salmon to a bet on the future adoption of Bitcoin.
And when Planet Money heard about this bet, the hosts, Jacob Goldstein and David Kestenbaum, invited the Salmon and Horowitz to come to their podcast show “to hash out the details of the bet,” which they did in episode 515 of Planet Money, which was titled “A Bet Over Bitcoin” and released on 5 February 2014.
The Details of the February 2014 Bet on Bitcoin Adoption
The main difference between the positions of Horowitz and Salmon was that the former believed that Bitcoin could be a great medium of exchange for the internet age, whereas Salmon believed that because Bitcoin had become so valuable so quickly, people would prefer to use it as a store of value rather than as a medium of exchange. Here is Salmon trying to explain this idea:
“Because Bitcoin offers the potential for so much profit just by sitting on it and because it is inherently a deflationary currency, which means that the longer you don't spend it, the more you benefit, then everyone has an incentive not to spend their Bitcoin, and you can't have an effective payments mechanism if you are not spending the currency.”
Horowitz and Salmon agreed on a five-year timeframe. After five years had passed, Planet Money would do a poll. They would ask a statistically significant sample of U.S. residents a simple question: had they used Bitcoin to buy something in the past 30 days. Horowitz’ prediction was that by February 2019, at least 10% of those polled would answer “yes”. The loser would buy the winner “a fine pair of Alpaca socks.”
The Result of the February 2014
Five years after that original bet was made, a reunion was organized in episode 891 of Planet Money (titled “Who Won The Bet Over Bitcoin?”) so that the co-hosts of episode 515 could discuss with Horowitz and Salmon the result of the bet. The poll of around 900 U.S. residents was carried out by opinion research firm Ipsos MORI. The percentage of those polled who said “yes” was only 3%, and some of those who said “yes” had used Bitcoin to pay for purchases of other cryptocurrencies at exchanges such as Coinbase as opposed to usual goods/services. Therefore, Salmon won the bet, and so Horowitz agreed to buy size 11 Alpaca socks for Salmon.
Horowit agreed that he had been “wrong”, and Salmon said that he was surprised that the price of Bitcoin had not fallen to zero. However, Horowitz was not too sad since although he had been wrong about the pace of Bitcoin adoption amongst consumers and merchants, one of the crypto companies his VC firm had invested in was Coinbase, which was recently valued at around $8 billion in its last fundraising round. So, although Horowitz had not the bet to Salmon, he and his firm had won huge on their $50 million bet on crypto.
The February 2018 Bet on Crypto Adoption
Horowitz was then if asked if in another five years from February 2019, people would be regularly using cryptocurrencies as the means of payment for goods/services. Horowitz answered “Oh, yes, I definitely do!” So, Salmon asked Horowitz if he would be willing to “take the same bet all over again.” Horowitz replied “yes” as long as this time around the bet was about mass adoption of cryptocurrencies rather than specifically Bitcoin. The other change that Horowitz asked for was that the second poll be carried outside the U.S. in a country without the same strong financial infrastructure as the U.S., for example, Mexico.
As for the stakes for this second bet, Salmon suggested that the loser should give the winner a 100-year-old bottle of Madeira wine (currently worth $500-1000) and one ether (ETH), which is currently worth around $118.
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