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.

  • 4
    $\begingroup$ 1) How does bitcoin destroy wealth? 2) You talk about bitcoin as if it was entirely speculative where "gullible people" get "lured into" it. For some people it can be extremely valuable to be able to pay anonymously in an untraceable way. Only cryptocurrencies and cash can offer that. Cash has been widely used for this purpose, but it's not possible to pay cash online. As our economy moves online, cryptocurrencies are filling the role cash has played in the shadier corners of the economy. My point is that bitcoin offers something that's very valuable to certain people in certain situations. $\endgroup$
    – M3RS
    Dec 8 '17 at 8:50
  • $\begingroup$ @M3RS : 1) by requiring more and more electric power for every transaction. 2) "For some people it can be extremely valuable to be able to pay anonymously in an untraceable way" : yes, it has its uses, but most people buy it not for these uses, but because they've seen how fast the price is climbing, and hope that it keeps climbing and they make a profit. Therefore the price is significantly bigger than what it would really be worth if it was merely used for its original claimed purpose. $\endgroup$
    – vsz
    Apr 11 at 11:48

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.

  • 2
    $\begingroup$ This is a very good prediction of what happened except that the inflation in the speculative value is happening again because people can't learn this lesson $\endgroup$
    – Kevin
    Feb 15 at 22:48

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