Is the value of Bitcoin based solely on speculation?
No. Bitcoin has a use value which would exist even if all the speculators vanished.
I know a Latin American company that pays their employees in Bitcoin – not because they think its value will go up, but because it’s cheaper than the transaction costs involved in fiat-denominated payments. I know a lady in Zimbabwe who is using Bitcoin because she does not have access to a sound currency.
These people are not speculators: they may prefer to trade their Bitcoin for a fiat currency at the first chance. However, their ongoing usage provides a demand for Bitcoin and thus establishes a price floor. The price of Bitcoin is the combination of current non-speculative usage and expectations for future non-speculative use cases for the Bitcoin network. This is different from a purely speculative asset like rare stamps or baseball cards, which have no practical use value.
With time, there will be more and more business cases where Bitcoin provides a superior business model. Bitcoin is like an iceberg which is slowly emerging from the water: we can already see the very limited applications where it already the best currency, but we can only imagine its potential after the crypto asset ecosystem matures and cryptocurrencies become a superior option for the majority of financial transactions.
Like any startup company, the valuation of Bitcoin today is driven mostly by the expectation of future market share. The difference is that the profit will be captured by the network’s users, and not by any central entity.