Bitcoin’s price has been on a wild ride since its inception.
2017 alone saw massive gains, starting the year at under $1,000 and, at its peak, breaking $19,000, according to industry site CoinDesk.
On Tuesday, it was trading at $11,943, a decline of 12 percent, according to CoinDesk.
As bitcoin’s popularity surges and its price rises and falls, more and more people are asking the same question: How does bitcoin, something that’s essentially invisible and intangible, have value?
Scarcity and utility
In economics, something has value if it checks the following two boxes: scarcity and utility. Scarcity just means that something has a finite supply. In the case of bitcoin, the cryptocurrency has a set cap of 21 million bitcoins.
Many analysts note that this set cap makes bitcoin more desirable than other assets, even gold. That’s because unlike with gold, there’s no need to worry about a digital Gold Rush. A treasure trove of bitcoin won’t ever be “discovered,” causing the crypto’s price to crash with an influx in supply.
“There are potentially millions of times more gold underground than actually has been extracted,”
said Tom Lee, head of research at Fundstrat Global Advisors. Lee was chief equity strategist at J.P. Morgan before co-founding Fundstrat in 2014.
Read more: CNBC