A: The fact that people value it.
I'm writing this apropos of an email discussion I had with a friend yesterday who remains skeptical about Bitcoin (hopefully you'll be seeing an article from him soon on why he's skeptical).
His point, as you can probably figure out without me saying so, is that Bitcoin is not backed by any physical commodity. His original phrasing of that point, which he may have changed in a subsequent draft of the article, is that Bitcoin is not "intrinsically valuable" while gold is.
His point, of course, is correct. That phraseology, however, is not.
Gold has long been considered valuable by many, perhaps most, people -- and for good reason. It is useful (and has become more so rather than less so over the centuries, because of its electrical conductive properties and so forth), it is scarce, it is fairly easily purified and broken down into uniform small quantities, making it a reliable medium of exchange, etc.
But gold's value is not "intrinsic." It's still subjective. You may consider a given quantity of gold more or less valuable than I do. Sure, there are large marketplaces that generate theoretical average valuations, but the only way to really tell how much each of us values any given amount of gold is to find out what we will trade for it, or trade it for.
Bitcoin is valued by at least some people as well. Whether or not their reasons for valuing it -- because it facilitates digital commerce with low transaction costs, because they think they can profit by speculating on its price fluctuations, because they think it will usher in an era of inability of the state to tax or regulate, etc. -- are good or wise or rational reasons is a separate question from whether or not they do value it. They do. That's just a fact.
And if people value something, it's valuable. That's just a fact too.
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