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What makes bitcoin so valuable? It has already surpassed the value of almost all publicly traded companies. I understand it can be used to buy things like digital money but why does the price go up? Can't people buy things with a more steady price of bitcoin? It seems like a steady price would be better for using it to buy things.
Have people missed this rally or does the current price grossly undervalue bitcoin?
Bitcoin doesn't have a value. It doesn't create wealth - it destroys it. It therefore has no yield.
It does, however, have a price. It's designed to have tightly-constrained supply, so that those people who got bitcoins early, can get rich by luring more people into buying bitcoin. And demand is just as large as the number of gullible people who can be fooled into buying it. That combination of extremely inelastic supply, and very malleable demand, creates very volatile pricing.
This extreme volatility makes it very impracticable as a currency, as does its extremely inflexible supply.
Bitcoin has two different audiences right now. One group wants to use it to transfer money in a hard to trace manner and is willing to take some risk and some frictional costs to do it. Some of these are criminals and some are just people who don't want to have to do the currency exchange themselves.
The other group is speculating on a change in the value of bitcoin versus other currencies. It is the second group that is driving the price change right now (December 2017) The danger is that if this price rise reverses, they will bail out and the value will crash back to that driven by the first group.
