Is bitcoin in a feedback loop where stable prices cause volatile prices, and vice versa?
Seems to me that it is. Stable prices allow it to be much more widely accepted. But as soon as that happens, because of its limited supply, the price has to dramatically increase. Bubbles form and pop. Then the price isn't stable anymore, merchants abandon it, people lose interest, and it settles at a new stable level.
It seems like this is exactly what's been happening (2 long cycles so far - stable, unstable, stable, unstable).
Of course that doesn't mean it will continue like this forever. People who thought stability would last, will not be so easily fooled the next time. But as long as large groups of people are tempted back to bitcoin at roughly the same time, the paradox continues. The only way to prevent it would be for people to trickle in very slowly. But we know that's not human nature, as soon as there seems to be a clear upward trend, everyone jumps on the bandwagon.
I have no idea whether the amplitude or period of the oscillations will get smaller or bigger (even though it seems like eventually, an equilibrium should be reached, that doesn't mean the dampening has begun yet).
Has this been discussed before? Am I making false assumptions here?
