Sat. Nov 16th, 2019

This USD 1 Million Bitcoin Bet Has Gone Awfully Wrong

This USD 1 Million Bitcoin Bet Has Gone Awfully Wrong 101
Source: iStock/DNY59

A bet made late last year by chief information officer and co-founder of cryptocurrency hedge fund BlockTower Ari Paul on behalf of the company seems, beyond all reasonable doubt, to be lost. The bet specified that a single bitcoin would be worth at least USD 50,000 by the end of 2018, and there is USD 1 million at stake.

The bet would have given the manager the chance to buy 275 bitcoins at USD 50,000 apiece any time before this Friday, when the call options expire, a purchase that would have cost USD 13.8 million. The manager spent just under USD 1 million on those call options. Bitcoin is trading at around USD 3,800 as of the time of writing, a drop of more than 80% from its peak of USD 19,783, when BlockTower made its bet.

Back in 2017, in an interview with CNBC, Paul explained that the option contracts BlockTower has purchased expire if the price of Bitcoin fails to reach the prophesied price by the end of 2018. But if it does, it pays out the firm on a 30 to 1 odds. Hence, this USD 1 million bet would generate BlockTower a USD 29 million in profit. At the time, he added, “Bitcoin is volatile. This is a hyper volatile asset. Bitcoin is up more than 1,400% this year. It also falls 30% almost every other month. These calls are a bet that if its volatile to the upside we can easily see over USD 50,000 next year.”

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In an email to Business Insider earlier this month, Paul wrote that “we were not betting on or expecting” a Bitcoin rally, adding, “In contrast, the options were a way for us to maintain exposure to an extreme rally while reducing overall crypto exposure.”

Bitcoin price chart:

This USD 1 Million Bitcoin Bet Has Gone Awfully Wrong 102

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However, this does not signify the end of crypto-related betting. Earlier this month, Morgan Creek Digital, a digital asset manager, bet USD 1 million that such assets will outperform the S&P 500, an American stock market index based on the market capitalizations of 500 large companies, during the next 10 years. The bet was dubbed the Buffett Bet 2.0 as it bears a striking similarity to one made by the business magnate Warren Buffett in 2007, when he bet a million dollars that an index fund would outperform a collection of hedge funds over the course of 10 years.

However, it seems that no one has taken the Morgan Creek bet yet. Mark Yusko and Anthony Pompliano, founders of the company, have not responded to requests for comment.

Meanwhile, on Wednesday, Pompliano told CNBC that bitcoin can still go below the USD 3,000 mark in the short term: