People value units of money because of their expected purchasing power; money will allow people to receive real goods and services in the future, and hence people are willing to give up real goods and services now in order to attain cash balances. Thus the expected future purchasing power of money explains its current purchasing power.
From a theoretical perspective, this is been the clearest elucidation to me. The reason the value of bitcoins is going up is because people who buy bitcoins expect that others will pay a higher price for it in the future.
Like I tell people: people who buy and sell bitcoins don't care that you don't want to participate. They just want anyone else who will participate.
"Menger's theory avoids all of these difficulties. According to Menger, money emerged spontaneously through the self-interested actions of individuals. No single person sat back and conceived of a universal medium of exchange, and no government compulsion was necessary to effect the transition from a condition of barter to a money economy."
If Bitcoin is to be a success, it is the polar opposite of the origins of money. Instead of developing naturally as a more efficient means of exchange, it has had to be designed top-down in order to work backwards against all the cruft that fiat currencies have collected - features that would have prevented the original money from ever being widley adopted.
The price of the Mona Lisa won't go down because the art community won't let it. It can do that because there is only 1 Mona Lisa. Such a force doesn't exist with Bitcoins.
I'm familiar with the greater fool theory. But people buy commodities, currencies and financial instruments on this expectation of increased future valuation. There could be a case made that the greater fool theory is in effect for bitcoins, but it can't be said that it is the case simply because people expect higher valuation in the future.
http://mises.org/daily/1333
From a theoretical perspective, this is been the clearest elucidation to me. The reason the value of bitcoins is going up is because people who buy bitcoins expect that others will pay a higher price for it in the future.
Like I tell people: people who buy and sell bitcoins don't care that you don't want to participate. They just want anyone else who will participate.