If miner supply was turned to 0.25 BTC today, would Bitcoin reach 1700 USD in several months?
Hyperbole. Your counterexample is a fallacy by design.
It is not fallacious at all. It's common sense. I modelled the economics of the block reward months before it happened. I concluded that each day, less than 1% of trade is from that day's mined coins—a value unlikely to increase after the block reward change. Now that this value is closer to 0.5%, price changes are no longer attributable to supply through mining.
Because of the way Bitcoin is designed, the supply entering the system is known. In effect, it is a combination of inflation and demurrage: inflation is known to a reasonable extent, and demurrage (through accidental coin loss) is inconstant, volatile, and unpredictable. These are the only influences affecting the money supply as a whole.
Although demurrage is predicted to become more important in Bitcoin's future, at the moment it is likely second fiddle to inflation. But inflation can be predicted to a reasonable accuracy even through ignoring mining altogether. So we can model mining approximately by untying it to inflation, and as an industry similar to any other. This is no more a fallacy than modelling the motion of the Earth relative to the Sun as an ellipse—sure, the Moon affects it, but not significantly enough to make our model unacceptably inaccurate.
Once we have established this model, mining becomes an industry like any other. Money is given to successful miners, and they earn a profit. This is no different from those successful in retail or in gambling.
A common fallacy repeated on these forums is that difficulty drives price. It does, but not in an intuitive way. With this economic model, we can see that mining is an industry like any other. If the cost of earning the money decreases (difficulty decreases), profits increase. And with increased profits comes decreased value—a result obtainable regardless of economic theory. The same is true when difficulty increases: with decreased profits comes increased price.
But we already know that mining is just an industry like any other. So clearly, mining alone is not going to make that large an impact. Difficulty doesn't really affect price that much because mining isn't that big of an industry. SatoshiDice alone is a bigger part of the economy than all miners at this stage. Price doesn't increase significantly because of difficulty.
So how do I determine that value is not affected by the block reward? Simple. Consider a situation in which the difficulty doubles overnight due to a bug in the protocol. What will happen? This is equivalent to a halving of the block reward, after all. Will price skyrocket? In a few months, maybe? No. Clearly, the only impact on the price is that miner profits are down and therefore there is a certain degree of price increase.
If miners were 100% of the economy, then only miners would be selling
BTC. There is a temporary rift in the supply as the majority of miners run into negative profit. The price should increase significantly as the supply is severely crippled. This effect should be instant or at least rapid, as everyone is aware of this.
But miners are not 100% of the economy. They are 20% at most. Gambling, retail, service, and yes, even speculation are all parts of the economy. Speculation, gambling, retail, and service make up the other 80%. Supply, at most, can only be crippled 20%. This means that even if the block reward and transaction fees disappeared overnight, the price should not reasonably appreciate more than 25%.
Conclusion: Our current appreciation cannot be explained on the block halving.
