Cliff Asness: The New 'Crypto Fort Knox' Is as Dumb as It Sounds | Hacker News Reader

Cliff Asness: The New 'Crypto Fort Knox' Is as Dumb as It Sounds

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54 pointskgwgk56 comments

If you are debating it, then you've lost.

That's what they want; it is the point of propaganda: To effectively disable your capability with distractions, in this case rabbit-hole debates about distractions and that lead nowhere. It's like directing the enemy force into a pathless swamp rather than to the battle.

The solution is that you need to define the merits, before you analyze the issue - just like you should define your own specifications before you talk to the salesperson. The merits of this issue are the cost (including the risk), economics, interference in free market, policy benefits/costs of establishing crypto, and most of all the corruption.

The other issue is the fraud and propaganda - why are they using propaganda? Is that an appropriate way to communicate with the public?

> If you are debating it, then you've lost.

Also worth noting the modern mode of propaganda that Russian started using several years ago:

> We characterize the contemporary Russian model for propaganda as “the firehose of falsehood” because of two of its distinctive features: high numbers of channels and messages and a shameless willingness to disseminate partial truths or outright fictions. In the words of one observer, “[N]ew Russian propaganda entertains, confuses and overwhelms the audience.”2

> Contemporary Russian propaganda has at least two other distinctive features. It is also rapid, continuous, and repetitive, and it lacks commitment to consistency.

[…]

> The experimental psychology literature suggests that, all other things being equal, messages received in greater volume and from more sources will be more persuasive. Quantity does indeed have a quality all its own. High volume can deliver other benefits that are relevant in the Russian propaganda context. First, high volume can consume the attention and other available bandwidth of potential audiences, drowning out competing messages. Second, high volume can overwhelm competing messages in a flood of disagreement. Third, multiple channels increase the chances that target audiences are exposed to the message. Fourth, receiving a message via multiple modes and from multiple sources increases the message's perceived credibility, especially if a disseminating source is one with which an audience member identifies.

* https://www.rand.org/pubs/perspectives/PE198.html

Naive take:

- doing something with all that seized crypto is probably a good idea. I've never heard of how it's actually used or managed but also never cared

- doing it as a strategic reserve of any significant value is multi-dimensionally insane given how technically blockchains work

- this is 100% a con. The only more obvious evidence would be to say he wants his own coin in the reserve

Agree it is a con. One note -- the government currently sells seized crypto once the courts have resolved ownership and restitution.

Seized cryptocurrency is generally auctioned off after the legal case is resolved, just like any other seized asset.

https://finance.yahoo.com/news/federal-government-just-got-g...

An insane amount of money was donated by pro-crypto lobbies to the campaigns, and they will make it all back.

Probably the most straight-forward criticism of the idea I've run across is:

> A strategic reserve makes sense if you can imagine a crisis where a crucial good - food, fuel, etc - would be in short supply: you want be able to release the reserve to meet demand.

> But I cannot imagine a crisis where releasing an emergency reserve of crypto would do any good.

* https://twitter.com/stephenfgordon/status/189636064029148371...

And a more jokey-y take:

> The main argument for a Strategic BItcoin Reserve seems to be that Bitcoin holders worry about an impending shortage of greater fools and need the US government to act as the greatest fool of last resort.

* https://twitter.com/davidfrum/status/1870564077535470079

Which part is supposed to be a joke?

How is that a joke? It's just straightforwardly correct and true.

That is actually very accurate

Why do we have ~$300B USD in gold sitting in reserve at Fort Knox?

> Why do we have ~$300B USD in gold sitting in reserve at Fort Knox?

¯\_(ツ)_/¯

Of course gold is considered price stable(ish)—though it maybe shouldn't be:

* https://www.macrotrends.net/1333/historical-gold-prices-100-...

* https://archive.is/https://www.thetimes.com/business-money/m...

—but BTC (and most other cryptocurrencies) are even more volatile and even less of a 'store of value'.

Inertia. A legacy of the gold standard. Or when kings paid for Hessian soldiers in gold. It's dumb.

Gold is traditionally the currency of international exchange, where you can't use any one country's currency. One can imagine a crisis that reverts international markets to using gold like this, at which pointing having a reserve would be useful.

Help us out here, what sort of crisis can we imagine where the federal government needs something from another country which can only be purchased with gold bullion? My imagination is failing me.

the US somehow tanks its own economy say based on the whims of a president who wants to allow the ultra-rich who enabled his ascendancy to buy everything for pennies on the dollar, leading to the collapse of the US dollar. a major terrorist attack or climate event cripples US infrastructure but because an unelected member of said ultra-rich class has destroyed major functions of government, there is no ability to respond, and none of our former allies is willing to extend goodwill to the US because we've completely destroyed our reputation on the world stage.

thankfully, something like that could never happen.

Perhaps because many well funded, organized, and violent criminals really want to steal it?

If we sold it there would be nothing to steal.

Realistically: because there are too many people with a financial interest in that gold staying off the market. Which isn't all that different from the reasons some people are opposed to the USG selling its cryptocurrency "reserve" as well; it's just a longer-standing reason.

I'll fully willing to admit this is full conspiracy theory mode, but in these times it's felt more and more true:

Part of me worries that the plan here is a submarine "abolish the fed" plan from the crypto wealth, and another arm of demolishing US federal power in general.

* Run the economy and foreign trade so poorly that the USD tanks, which if you're 'lucky' and do it quickly enough also tanks all fiat that uses the USD as a reserve currency.

* Everyone switches away from fiat for reserve in exchange for a host of other stores of wealth, probably including crypto (that you ostensibly already own, and you cement your own power).

* You get rid of the fed, and the central bank idea in the US, cutting a major instrument of federal power. Or maybe you leave them around in name, but they're worthless to the point that they're almost a vestigial arm of the state.

* You're left with a major pillar of the end goal for a lot of the crypto wealth, which is an ultra balkanized world of a mesh of loosely federated city states.

Honest question from someone who doesn't know much about crypto stuff:

What about the whole majority control thing? If another nation decides to scoop up a "controlling share" could they somehow gain control of the ledger? Could that be part of the reasoning in any way?

Most cyptos don't run on majority control. The rules of Bitcoin, for example, will never be changed.

The "rules of Bitcoin" are squarely under the control of Bitcoin mining consortia. They have been changed before, and will undoubtedly change in the future.

They really aren't but that's a common misconception.

Isn’t the thing we usually call “Bitcoin” today a fork of the original Bitcoin, precisely because a group decided to change the rules?

There were one or two bugfixes in the early days but Bitcoin is still basically on the original chain and very old versions of the code can still interoperate with the current chain. http://web.archive.org/web/20191223125456/https://www.trustn...

That is the most clever part of bitcoin. To do this one would need to have 51% of the hash rate which would be VERY expensive.

Ah, so not ownership of coins but computing power.

Yep, Bitcoin uses Proof of Work (computing power) for consensus, while some others like Ethereum use Proof of Stake (coin ownership).

I would disagree with "clever", but it certainly is currently expensive. The degree of expensive can fluctuate and could be influenced. It is not guaranteed to remain expensive, and a nation state like the US could control 51% of the hash rate if it wanted to, regardless of the expense, I think . . .

> If another nation decides to scoop up a "controlling share" could they somehow gain control of the ledger?

TLDR: They could, but it'd be difficult and might require things like creating a national botnet or knocking other people offline.

How this works depends on "proof of work" versus "proof of stake" systems. Bitcoin is the former, where that kind of takeover requires controlling the majority of computing-power being actively used to confirm transactions.

Imagine a branching tree growing upwards, where every node is "and then this transaction happened next." Everyone has already agreed to treat the longest total path as "the true one". This leads to a tree which is very very tall with lots of short dead stubs for transactions that had to be retried.

People assume their transaction is safe when it is embedded far enough back that it looks like it'll always be on any longest path going forward. By controlling a majority of the computing power, you can create your own branch of events and ensure it will be longest, even if everybody else is making a deliberate effort to say "no, these other transactions happened instead."

Seems like a straightforward payoff to the crypto industry for their support.

You guys across the pond still OK?

David Sacks has been pretty shameless about this whole thing. He's disingenuously framing previous sales of seized crypto has having "lost" billions of dollars due to the value of those projects later increasing - as if it would have any value to the government if it weren't sold at all. Even if this "strategic reserve" is only ever funded with seized crypto, people like him still benefit from those seized tokens being kept off the market.

> […] framing previous sales of seized crypto has having "lost" billions of dollars due to the value of those projects later increasing - as if it would have any value to the government if it weren't sold at all.

And this is not only true for cryptocurrencies but for money in general: having a bunch of coins or bills or a number associated with your bank account is not the point of money. The point of money is to buy goods and services that make life possible and enjoyable.

Certainly one needs some amount of money just sitting around as an emergency (or retirement) fund so you can sleep without worry about unpleasant possible future events (job loss, car breakdown, etc), but you're (generally) supposed to get money to spend it.

Having a bunch of cryptocurrency assets sitting around is generally just as useless.

That analysis doesn't apply because crypto isn't money.

> That analysis doesn't apply because crypto isn't money.

I've been told multiple times on HN that cryptocurrencies/BTC are a medium of exchange, and a store of value, and thus money.

While I'm mostly indifferent on the government holding strategic reserves of gold (which they already do) or gold-like digital assets (which is being proposed) I don't think Cliff Asness's opinion should sway you either way.

Finance media loves the appeal to authority fallacy, but it's important to know anytime you ask someone who runs a fund their opinion, they're talking their book. Hedge funds make money on management fees, not on being right about everything.

Cliff Asness is in the anti-gold camp and runs a long-short hedge fund almost exclusively based on the five-factor research. Obviously he wouldn't like to promote the idea of long-only gold (crypto or otherwise), that's not a fund AQR sells.

You can just as easily find a hedge fund billionaire with the opposite opinion, ie. like Ray Dalio who is in the gold camp and sees it as a diversifier, and surprise surprise this is a selling point to his institutional investors who are also in that camp.

What do either of these billionaires opinions mean for what you should think about this idea from first principles? Nothing.

Is it non-productive and stupid that gold and bitcoin have value? Yes. Are the people touting both usually annoying? Yes. But it doesn't change the fact that they have historically offered uncorrelated positive returns.

Gold has offered barely positive returns over long time periods.

A financial asset with barely positive returns but uncorrelated to other financial assets is actually an extremely valuable thing.

Heck, if you can find a basket of 4-5 uncorrelated return streams that only deliver 1% per year after inflation, you could start a hedge fund. Non-correlation = reduced volatility = the ability to apply massive leverage to increase that 1% return.

> Non-correlation = reduced volatility

If the volatility of each uncorrelated thing is high you may need to put together many more than 4-5 to bring it down.

only if such assets have very low / no vol. With any level of leverage such a strategy brings along a significant risk of gambler's ruin.

How about engaging with any of the arguments made in TFA?

Such as:

- Crypto is more volatile than stocks, already a volatile asset

- sovereign wealth funds are tool for industrial policy, which is a bad idea

- sovereign wealth funds tend to be associated with corruption

- money would be better spent paying down debt or (in absence of debt) reducing taxes or UBI

And so on.

My understanding of the executive action is that it authorizes this sovereign wealth fund as a place to store the Bitcoin that US authorities seize from criminals; that the Treasury is allowed (but not required) to develop a budget-neutral plan to purchase more Bitcoin; and that key people involved have stated that they never want the reserve to be liquidated.

I think you can definitely slippery slope your way into finding a problem with this, but it seems pretty reasonable to me. The government had all this bitcoin anyway. They've definitely sold some of it over time, but otherwise its just rotting in evidence lockers somewhere. We could definitely have a better plan in place to sell it, but that's boring.

The whole concept is daft! There's no reason whatsoever for a government that runs a deficit to invest in bitcoin or stocks or precious metals or diamonds or pokemon cards or anything else. It's just a transfer of wealth from the general public to a handful of well placed grifters.

We're getting scammed.

This entire administration is a giant grift. A to Z: from cheap MAGA merch manufactured in Bengladesh to obvious conflicts of interests in DOGE, POTUS-endorsed crypto pump and dumps and insane bribery of almost every elected official.

I don't think its fair to say there are no reasons. Having a large balance sheet and a diverse pool of assets helps with national creditworthiness and interest rate negotiation. When people say that US Treasuries are backed by the full faith of the United States, that "faith" includes her assets; and while having the power to print as much cash as you want is a pretty powerful asset to have, a few hundred billion in Gold and Bitcoin helps more than we'd be helped by liquidating it and paying down like 0.5% of the national debt.

As you just pointed out, a few hundred billion in gold is a drop in the bucket compared to the $36 trillion debt. If creditors get spooked, that reserve will do nothing.

Liquidate it, lay off the guards and administrators (seems in vogue these days), and move on.

Yeah; sell the bitcoin. Sell the gold. Sell the forests. Cut the military. Why own anything at all? Credit is just floaty vibes anyway; the economy is based on debt, debt is the only thing anyone ever needs to own.

Forests and the military are public goods; citizens derive benefit from these things. Bitcoin and gold are not public goods.

> but that's boring

Why is 'boring' bad?

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