Directions : Read the following passage carefully and answer the questions that follow.
Put the word Bitcoin into Google and you get four adverts at the top of the list: "Trade Bitcoin with no fees", "Fastest Way to Buy Bitcoin", "Where to Buy Bitcoins" and "Looking to Invest in Bitcoins". All this indicates that Bitcoin has reached a new phase. The stock market has been trading at high valuations, based on the long-term average of profits, for some time. But there is nothing like the same excitement about shares as there was in the dotcom bubble of 1999-2000. That excitement has shifted to the world of cryptocurrencies like Bitcoin and Ethereum. A recent column focused on the rise of initial coin offerings, a way for companies to raise cash without the need for a formal stock market listing - investors get tokens (electronic coins) in businesses that have not issued a full prospectus. These tokens do not normally give equity rights. Remarkably, as many as 600 ICOs are planned or have been launched.
This enthusiasm is both the result, and the cause, of the sharp rise in the Bitcoin chart in recent months. The latest spike was driven by the news that the Chicago Mercantile Exchange will trade futures in Bitcoin; a derivatives contract based on a notional currency. More people will trade in Bitcoin and that means more demand, and thus the price should go up. But what is the appeal of Bitcoin? There are really three strands; the limited nature of supply - new coins can only be created through complex calculations, and the total is limited to 21m; fears about the long-term value of fiat currencies in an era of quantitative easing; and the appeal of anonymity. The last factor makes Bitcoin appealing to criminals creating this ingenious valuation method for the currency of around $570.
These three factors explain why there is some demand for Bitcoin but not the recent surge. The supply details have if anything deteriorated (rival cryptocurrencies are emerging); the criminal community hasn't suddenly risen in size; and there is no sign of general inflation. A possible explanation is the belief that blockchain, the technology that underlines Bitcoin, will be used across the finance industry. But you can create blockchains without having anything to do with Bitcoin; the success of the two aren't inextricably linked. A much more plausible reason for the demand for Bitcoin is that the price is going up rapidly.
People are not buying Bitcoin because they intend to use it in their daily lives. Currencies need to have a steady price if they are to be a medium of exchange. Buyers do not want to exchange a token that might jump sharply in price the next day; sellers do not want to receive a token that might plunge in price. As the old saying goes "Up like a rocket, down like a stick." People are buying Bitcoin because they expect other people to buy it from them at a higher price; the definition of the greater fool theory. Someone responded to me on Twitter by implying the fools were those who were not buying; everyone who did so had become a millionaire. But it is one thing to become a millionaire on paper, or in "bits"; it is another to be able to get into a bubble and out again with your wealth intact.
According to the passage, which of the following conclusions can be made as to why people are buying bitcoins?
- a)Because it is not easily traceable.
- b)Because no one can have any knowledge about the transactions.
- c)Because there are no laws in a majority of countries regarding it.
- d)Because at the moment it is rising in price.
- e)All of the above can be concluded.
Correct answer is option 'D'. Can you explain this answer?
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Answers
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Pioneer Academy
Jan 20, 2022 |
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Time and again in the passage, the author has discussed about the downsides of bitcoins. However, opening two sentences of the 2nd para, opening sentence of the 3rd para and the 5th sentence of the last para, all point to the fact that people are indeed buying bitcoins, and the only reason that could define this action is the appreciation in the value. Hence, D will be the best answer here. E cannot be the correct answer because option C talks about "laws in countries" but the passage includes nothing as such.
Time and again in the passage, the author has discussed about the downsides of bitcoins. However, opening two sentences of the 2nd para, opening sentence of the 3rd para and the 5th sentence of the last para, all point to the fact that people are indeed buying bitcoins, and the only reason that could define this action is the appreciation in the value. Hence, D will be the best answer here. E cannot be the correct answer because option C talks about "laws in countries" but the passage includes nothing as such.
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Time and again in the passage, the author has discussed about the downsides of bitcoins. However, opening two sentences of the 2nd para, opening sentence of the 3rd para and the 5th sentence of the last para, all point to the fact that people are indeed buying bitcoins, and the only reason that could define this action is the appreciation in the value. Hence, D will be the best answer here. E cannot be the correct answer because option C talks about "laws in countries" but the passage includes nothing as such.
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