Yes it will but only as a result of a significant rise in the BTC price. In fact any significant increase in the use of Bitcoin as a payment method will result, by itself, in a substantial increase in the BTC price with no speculation involved. One needs to consider the size of the float in BTC needed between the customers of the business, the suppliers of the business and the business it self. We are not even considering that any of the players involved will keep some funds in BTC simply for convenience to avoid exchange fees and spreads.
You're ignoring the velocity component of MV=PQ.Suppose Megaupload customers are using Bitinstant to buy bitcoins and Megaupload is using Bit-Pay to instantly convert them to USD. The payment could conceivably spend less than an hour as bitcoins before being recycled into other transactions. Depending on the specific values of V and Q involved a massive increase in bitcoin use as a payment system could initially reduce the exchange rate instead of increasing it.
No I am not ignoring M=PQ/V. It is just that I consider your value for V=8760 (24*365) completely unrealistic.
M is set by protocol so the factors to consider are P, V and Q. P is the price of goods in BTC. People who want the value of bitcoins to increase want a lower P.
If a large business started accepting payments in bitcoin Q would certainly increase. If immediately spending, or converting the bitcoins to another currency, tends to increase velocity depending on where it was to start with. Holding on to the bitcoins tends to reduce velocity.
Which effect dominates depends on the relative change of both P and Q. If Megaupload increased V more than it increased Q the exchange rate (USD/BTC) would go down.
Right now my best guess is that velocity today is such that anything Kim Dotcom is likely to do would increase the exchange rate, but that's not the same as a guarantee, and certainly it's not true to say any significant increase of bitcoin as a payment method will make the price go up.
The velocity (V) of the M1 (Cash and Chequing accounts) money supply in the United States is 6.958 on a turn over every 52 days. I have two questions:
1) What is the justification for a different velocity V for Bitcoin?
2) How high a value of V for Bitcoin do you propose is the maximum it reach to allow for an increase in Q while keeping P constant or even allowing P to rise?
