Bitcoin has value because it can be exchanged for and used in place of fiat currency, but it maintains a high exchange rate primarily because it is in demand by investors interested in the possibility of returns. Of course, many other factors influence Bitcoin’s value. Read on to learn more about why Bitcoin has value.
Key Takeaways
- Bitcoin has value because it can function as a store of value and a unit of exchange.
- Bitcoin demonstrates six key attributes that enable its use in an economy.
- The definition of value in a currency has changed over centuries from physical attributes to the velocity of its use in an economy.
- Bitcoin demonstrates the attributes of a currency, but its primary source of value lies in its restricted supply and increasing demand.
Why Traditional Currencies Have Value
Many items have been used to exchange value, such as shells, beads, animal skins, and precious metals. In this context, these items are regarded as money. Money doesn’t have to be the printed currency we are all familiar with—all it needs is to act as a store of value, be recognizable as a unit of account, and be accepted as a medium of exchange.
So, if an item meets those criteria, it is money. However, to be successful and long-lasting, it must have:
- Scarcity: It must not be a widely available resource
- Divisibility: Currency should have many denominations
- Acceptability: The intended audience must accept it
- Portability: It must be able to be carried around and exchanged
- Durability: Currency should have a long life span time
- Uniformity: All denominations should be identical and not easily reproduced
Value is then assigned by the users based on its supply, demand for the currency, how much it is worth to them, and how much of a good or service it can purchase.
The image below compares many different value attributes of gold, fiat, and cryptocurrency.
Image by Sabrina Jiang © Investopedia 2020
Fast Fact
Traditional money, as we know it, is backed by the full faith and credit of the issuing government. For instance, the U.S. dollar is backed by the U.S. government while the British pound is backed by the government of the United Kingdom.
Why Does Bitcoin Have Value?
Unlike fiat currency, cryptocurrencies like Bitcoin aren’t backed by the full faith of the government. But, they do display the same attributes a fiat currency system does. Here’s how it meets them:
- Scarcity: As the supply of unrewarded coins diminishes, demand increases. There will only ever be 21 million Bitcoins in existence.
- Divisibility: Bitcoin is much more divisible than fiat currencies. One coin can be divided into up to eight decimal places, with constituent units called satoshis.
- Acceptability: More people are becoming familiar with cryptocurrencies, and citizens of many countries are adopting them because their financial systems are failing them. Businesses are accepting them in greater numbers, and more consumers are using them.
- Portability: Bitcoin can be used across borders, allowing any consumer with an internet connection to participate in the global economy and access financial services.
- Durability: As it occupies a digital space, a Bitcoin can last as long as there is a digital area for its storage.
- Uniformity: Bitcoins cannot be counterfeited and don’t have a physical appearance, although there are renditions of coins that represent them.
Bitcoin is considered money because it is accepted as a medium of exchange, stores value, and is recognized as a unit of account.
Important
Two of the most influential factors behind Bitcoin’s price volatility are greed and the fear of missing out on large returns. Greed is generally considered a negative trait, but in these modern (and expensive) times, it is natural for people to want more money. In fact, society and the businesses operating within it even encourage the desire for more.
But its exchange rate, the value most often associated with the coin, isn’t so much a factor that the people who use Bitcoins in transactions. Rather, it’s investors buying the cryptocurrency hoping for profits and traders buying and selling it to make money on price movements.
Because it is in demand by investors (realistically, they are speculators because they want returns), Bitcoin commands a very high price, as demonstrated by the exchange rates it has experienced in the past. At one point, 1 BTC was valued at less than $1. As of April 2025, that same Bitcoin is worth more than $95,000. Prices have varied wildly since Bitcoin was introduced, but this volatility has many hoping that the market will continue to feed an increasing value.
Why Is Bitcoin So Precious?
Like any asset or thing of value, the price people will pay for Bitcoins is a socially agreed-upon level based on supply and demand. As long as Bitcoin is highly valued by some, it will maintain its demand.
What Is the Point of Bitcoin?
What Drives the Price of Bitcoin?
Bitcoin’s price is primarily driven by supply, demand, fear, and greed. Some people argue that its price is correlated to its cost of production, its utility as a store of value, or its intrinsic value—but if these were true, it would not be as volatile and reactive as it is.
Who Created Bitcoin?
Bitcoin was created in 2009 by an individual who used the pseudonym Satoshi Nakamoto. Their identity has never been revealed.
Bitcoin is a digital asset and has no central bank or authority. There are no physical coins, which means it is distributed by individuals over digital platforms, exchanges, and through peer-to-peer transactions.
The Bottom Line
Like all forms of currency, Bitcoin is given value by its users, supply, and demand. As long as it maintains the attributes associated with money and there is demand for it, it will remain a means of exchange, a store of value, and another way for investors to speculate, regardless of its monetary value.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own cryptocurrency.
