The awkward mathematics of booms and bubbles

When short and long aren't opposites.

One of the most common responses in the many, many comments to my pieces on Bitcoin over the last couple of weeks has been to ask me why, if I'm so sure it's a bubble, I don't short it.

The simplest answer is that journalism isn't a career which leaves a huge amount of money left over after the bills are paid with which to gamble, and that I'm not entirely sure it's ethical anyway. There's also the fact that the two main Bitcoin meta-exchanges aren't particularly liquid, which leaves me doubtful that I'd get the best value for money on any shorting contract,

Then there's the problem that being pretty certain the bubble is going to pop doesn't leave me any surer about when it's going to pop – something which most methods of shorting require you to know.

Shorting usually involves borrowing the thing you want to short for a fixed amount of time, selling it straight away, and then buying it back just before your loan is up. Ideally, the commodity has dropped in value, and so you make a profit by you pocketing the difference.

In a normal commodity, going short and going long – buying the commodity to sell at a higher price – are roughly symmetrical. If a share in Apple goes up $1, the people who are long make a dollar a share; if it goes down, the people who are short do.

But that symmetry breaks down when you're dealing with a commodity on the sort of parabolic trend that Bitcoin is shooting along now.

If I spend £100 on Bitcoin, then the most I can lose is £100. Conversely, if the trend continues, I could have £1000 in a month. And the maximum possible payoff is basically uncapped. Suppose I'm catastrophically wrong, and Bitcoin becomes the world currency by the end of the year – anyone who'd bought in to it, even at today's inflated prices, would be a millionaire.

But what if I short it, by borrowing £100 of Bitcoin? Well, then the most I can earn is £100, if the price drops to zero. But the amount I could lose is potentially uncapped, for the exact same reasons that make buying in to it so appealing.

That lack of symmetry – which is an innate feature of, well, maths – serves only to goose the bubble higher and higher. And at the other side, when the down swing comes, it will be vicious; with no shorters ready to step in and buy the coins of people trying to cash out, the volatility will have nothing dampening it.

So that's why I'm keeping my money where it is. But don't think I'm not pretty damn confident when I say that if I had any extra, it still wouldn't be in Bitcoin.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Fark.com’s censorship story is a striking insight into Google’s unchecked power

The founder of the community-driven website claims its advertising revenue was cut off for five weeks.

When Microsoft launched its new search engine Bing in 2009, it wasted no time in trying to get the word out. By striking a deal with the producers of the American teen drama Gossip Girl, it made a range of beautiful characters utter the words “Bing it!” in a way that fell clumsily on the audience’s ears. By the early Noughties, “search it” had already been universally replaced by the words “Google it”, a phrase that had become so ubiquitous that anything else sounded odd.

A screenshot from Gossip Girl, via ildarabbit.wordpress.com

Like Hoover and Tupperware before it, Google’s brand name has now become a generic term.

Yet only recently have concerns about Google’s pervasiveness received mainstream attention. Last month, The Observer ran a story about Google’s auto-fill pulling up the suggested question of “Are Jews evil?” and giving hate speech prominence in the first page of search results. Within a day, Google had altered the autocomplete results.

Though the company’s response may seem promising, it is important to remember that Google isn’t just a search engine (Google’s parent company, Alphabet, has too many subdivisions to mention). Google AdSense is an online advertising service that allows many websites to profit from hosting advertisements on its pages, including the New Statesman itself. Yesterday, Drew Curtis, the founder of the internet news aggregator Fark.com, shared a story about his experiences with the service.

Under the headline “Google farked us over”, Curtis wrote:

“This past October we suffered a huge financial hit because Google mistakenly identified an image that was posted in our comments section over half a decade ago as an underage adult image – which is a felony by the way. Our ads were turned off for almost five weeks – completely and totally their mistake – and they refuse to make it right.”

The image was of a fully-clothed actress who was an adult at the time, yet Curtis claims Google flagged it because of “a small pedo bear logo” – a meme used to mock paedophiles online. More troubling than Google’s decision, however, is the difficulty that Curtis had contacting the company and resolving the issue, a process which he claims took five weeks. He wrote:

“During this five week period where our ads were shut off, every single interaction with Google Policy took between one to five days. One example: Google Policy told us they shut our ads off due to an image. Without telling us where it was. When I immediately responded and asked them where it was, the response took three more days.”

Curtis claims that other sites have had these issues but are too afraid of Google to speak out publicly. A Google spokesperson says: "We constantly review publishers for compliance with our AdSense policies and take action in the event of violations. If publishers want to appeal or learn more about actions taken with respect to their account, they can find information at the help centre here.”

Fark.com has lost revenue because of Google’s decision, according to Curtis, who sent out a plea for new subscribers to help it “get back on track”. It is easy to see how a smaller website could have been ruined in a similar scenario.


The offending image, via Fark

Google’s decision was not sinister, and it is obviously important that it tackles things that violate its policies. The lack of transparency around such decisions, and the difficulty getting in touch with Google, are troubling, however, as much of the media relies on the AdSense service to exist.

Even if Google doesn’t actively abuse this power, it is disturbing that it has the means by which to strangle any online publication, and worrying that smaller organisations can have problems getting in contact with it to solve any issues. In light of the recent news about Google's search results, the picture painted becomes more even troubling.

Update, 13/01/17:

Another Google spokesperson got in touch to provide the following statement: “We have an existing set of publisher policies that govern where Google ads may be placed in order to protect users from harmful, misleading or inappropriate content.  We enforce these policies vigorously, and taking action may include suspending ads on their site. Publishers can appeal these actions.”

Amelia Tait is a technology and digital culture writer at the New Statesman.