| Less than a year ago when this newsletter began, it was observed that explaining the motion of digital-currency markets is hard. "If you've tried, you know,'' went the lament. "There is no cohesive rationale to day-to-day moves in crypto.'' So it was interesting when a paper recently popped up purporting to have figured this out. Retail traders of Bitcoin and its brethren are unlike those who sling stocks and gold. Those more traditional investors show a tendency to cut positions after a nice runup. According to the paper, "Are Cryptos Different?," by writers at Wharton, MIT and the LSE, the crypto faithful are often guided by momentum — that you make money by betting winners will run. Not a huge revelation, admittedly, though interesting in its implications. In trying to explain why price momentum is beloved among the Bitcoin retail set, the paper posits that it is in effect due to a belief that everything in crypto is a self-fulfilling prophesy. Number go up, and Bitcoin as a concept grows stronger. "The value of cryptocurrencies is largely based on expectations about potentially wider future adoption, which in turn might be influenced by their current value,'' the authors reason. Why? Partly because there's nothing else to go on. In ordinary markets— where people have found real-world uses for things like companies and commodities — it's possible to make judgments about their relative value. You have an idea if something is cheap compared with the return you expect it to produce. In crypto, there often isn't any return, and day-trading becomes a venture investment, a flyer on the viability of the industry. The study was based on research using brokerage accounts up to 2019, so it is not concerned with the events of today, including the collapse of FTX. Some of its logic might nevertheless apply. One is struck in reading government accounts of Sam Bankman-Fried's purported misdeeds by the unconcern that is at times alleged, the claim that while FTX was hurtling toward oblivion, its principals was merrily plowing money into startups. While doubling-down isn't new in the annals of scandal — just about every protagonist in an unmarked-trade caper has swung for the fences to salvage a P&L — normally the wager hasn't been seed financing that might take years to pay out. In crypto, where everything depends on good feelings about the industry as a whole, you can see how it might be — particularly in the hands of someone whose con depends on appealing to the momentum crowd. Programming note: Bloomberg Crypto will take a break next week and resume in the new year. If you are looking for us in the meantime, find us on The Terminal or go to bloomberg.com/crypto. Thanks to all of our readers and see you in 2023. | 
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