Exactly what bitcoin is backed by is something of a mystery for economist to debate. Much of it is people speculating, but I don't see anything unreasonable with saying much of the value, at least pre-speculation, is from its use to carry out illegal transactions. There is some use in other areas so I wouldn't say it was ever entirely the case, but I don't see what's wrong with arguing it was a major factor and is still somewhat of a factor. I do expect between speculation and alt coins better made for hiding activity it is a small and shrinking factor now, but I could be wrong.
