They are a unit of exchange that freely floats based on the demand for that unit of exchange. There is an eventual fixed supply of coins (21 million), with cur

They are a unit of exchange that freely floats based on the demand for that unit of exchange. There is an eventual fixed supply of coins (21 million), with currently ~13 million in circulation (http://blockexplorer.com/q/totalbc http://blockexplorer.com/q/totalbc). Given that the 13 million isn't increasing at any meaningful rate as it relates to the money supply, we can almost consider the supply fixed (at least on any short term perspective). With this fixed supply, if more people become interested in using bitcoin as a unit of exchange and buy it in order to use it, then they will increase the demand and thus the price. If they used it to transfer money back home (i.e. remittances), and their family their exited the position back into cash, then the demand would be neutral. In reality, their is some cost of carry where by holding it for a period, you still increase the demand. That would an explanation for the price were it governed by an actual underlying value. In reality, the price is mainly governed by speculators hoping that it will be used by people as a unit of exchange eventually and thus the speculators are buying and holding coins.