Bitcoin going even higher? Ask your robot for advice

Plus: Put your money where the mid-cap stocks are [Bloomberg]( This is Bloomberg Opinion Today, a strategic reserve of Bloomberg Opinion’s opinions. [Sign up here](. Today’s Agenda - A strategic [Bitcoin]( reserve is a strategic blunder. - AI is coming for your [quant job](. - [Mid-cap]( stocks deserve a look. Strategic Cronyism Reserve The US has reserves of petroleum and precious metals, and President-elect Donald Trump has toyed with the idea of creating a strategic Bitcoin reserve too. Some people think it’s a good diversifier in portfolios, and it has generally gone up in value, so why shouldn’t Uncle Sam get in on the action? What could possibly be the downside of turning the US government into a crypto hedge fund? Anything at all come to mind? Bloomberg Opinion columnist Bill Dudley has a few thoughts. He [writes]( that, the Bitcoin reserve idea would probably send prices soaring, and “it's thus easy to see why current Bitcoin holders love the idea.” As you may recall, Bitcoin already surged past $100,000 earlier this week, fueled by Trump’s cozy relationship with crypto boosters. The government’s seal of approval could bring in trillions of dollars of additional inflows to an asset with a finite supply. Translation: rich Bitcoin bros and Lamborghini’s in every Miami parking lot. Indeed, if everyone decided to allocate just 2% of their investment portfolios to Bitcoin, Bill figures that would push the value of the Bitcoin market to $5 trillion, or $250,000 a coin (up from about $101,000 at the time of writing.) Again, great if you already own the stuff! But what’s in it for the government and everyone else? “Nothing good,” writes Bill, who previously served as president of the Federal Reserve Bank of New York (before landing a proper gig as a writer of Bloomberg Opinion columns.) “There’s no exit strategy, so the purpose must be to push prices higher, not create value for the government — which would be stuck holding volatile tokens that produce no income.” For what it’s worth, Bill isn’t the only top economist to land on that view. Former US Treasury Secretary Lawrence Summers [dismissed]( the idea as “crazy” on Bloomberg Television’s Wall Street Week with David Westin. Robot Portfolio Managers Like everything in financial markets, crypto investing is tricky, but we might not be too far from the day when robots can provide investing advice and construct portfolios at least as well as fallible humans. Maybe. In a recent interview with Bloomberg Television, AQR Capital Management’s Cliff Asness said that the firm is using AI for core parts of its work, and that AI is “annoyingly better” than him at aspects of his job. “AI’s coming for me now,” he said. Aaron Brown, who worked at AQR for a decade, [writes]( that the “the dream of fully self-driving portfolios seems within reach.” He says that the past seven years or so — which Aaron dates to the publication of a paper called “Attention Is All You Need” in 2017 — have seen major improvements in AI’s usefulness. Instead of just using it for trade execution (just one step of the investing process), he says it’s now gotten much better at the other two key tasks of quant investors: identifying predictive factors in markets and “combining signals from those factors into optimal portfolios.” Aaron says that the big story on the horizon is the potential for different AI system types to talk to one another. “The synergy from combining three different AI systems should be much greater than the individual advantages in each step,” he writes. Telltale Charts: Stuck in the Middle With You Fortunately, it doesn’t take a robot financial advisor to succeed in today’s stock market. US stocks have been on an absolute tear lately, but one particular corner of the market that’s garnering a bit more attention heading into 2025 is mid-cap stocks — the ones that have neither gigantic market capitalizations nor small ones. Companies such as Sprouts Farmers Market Inc. or Comfort Systems USA Inc., a provider of heating and air conditioning systems, come to mind. I know, I know — those investments don’t sound as sexy as crypto or the high-flying artificial intelligence stocks, but it turns out they’ve delivered pretty sexy returns over the past 30 years. As I (Jonathan Levin) write in my [column]( today, they’ve done better than both large-caps and small-caps in that period. What’s more, they may be a bit of an antidote to fears about frothiness and overconcentration in the S&P 500, especially among the large-cap growth stocks known as the Magnificent 7. What explains their extraordinary run over the past three decades? Resilience. They are the tortoise in the Tortoise and the Hare fable. While they haven’t delivered fireworks very often, the index outperformed during the dot-com bust and its aftermath (2000-2005). And as a result, a $100,000 investment in mid-caps three decades ago would be worth around $3 million — $700,000 more than a similar investment in large caps! Not bad for the middle child of equity markets! Further Reading Democracy is [wobbling]( around the world. — Andreas Kluth Steer clear of the [disinformation]( on cow burps. — Lara Williams Work [requirements]( government aid don’t increase work. — Kathryn Anne Edwards That Honeywell [guidance]( cut is actually a good thing. — Thomas Black Is it possible that [Black Friday]( was too good for retailers? —Andrea Felsted ICYMI A [mystery disease]( in Congo Better testing for [bird flu](. TikTok's [uncertain future](. The Naval Academy's [new ruling](. Kickers The world’s [best cheddar](. [Rocky's]( look-alike contest. [Slingshot spiders]( are wild. Do an [illegal thing]( legally.  Notes: Please send your robot advisor’s favorite mid-cap stock picks to Jonathan Levin at JLevin20@bloomberg.net. 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