Bitcoin will appear dead - it may even actually be dead until the next cycle. The problem here is that there may not be a next cycle. This is just part of the affect of an unregulated system - cycles. There is no one here that will defend BTC, ie act as a buyer of last resort. This is a pure market function. Price stability plays no role in pure capitalism.
For now, bitcoin is merely a commodity. One subject to speculation, obviously. Its monetary value is much lower (about 0.25 BTC/USD as I've recently guesstimated). To view it as a money "running an economy" at this point and discuss about it as if it was a established money is inadequate.
I'm not sure you are doing that (talking about bitcoin as a money). Are you? Because it sounds to me a bit like you are defending a regulated fiat currency system (government regulates economy). But that might be some kind of bias on my part.
Either way, maybe you can be a bit more clear on what you're talking about in the quoted paragraph.. I'd love to discuss.
From an economics point of view, I think of bitcoin as a store of work based on the fact it takes a finite amount of electricity and computational power to generate bitcoins. So, in this way bitcoins are a form of money, ie a store of value. However, bitcoins don't behave the same. I believe since there is no central authority, which has an interest in defending price stability. Because of this lack of defense against pure speculation, it acts like a commodity on the open market. Which means wild swings that speculators use to their benefit. Now, from a purely legal regulated outlook, I suppose until some countries legal system declares otherwise, I think of bitcoins as a commodity rather than a form of money or currency.
Actually I am defending regulated fiat currencies, in so much as they provide stability and can make it unprofitable for speculators by overwhelming them. I am not defending fiat currencies in the way they created a bureaucratic mess and their current method of monetizing debts. However, the side affect of price stability right now is monetizing debts, so go figure, in a way I guess I am even defending that right now...
I am treating bitcion as nothing more than another payment system, although with some very interesting features.
My real point is that if people want a "economy" in bitcoin that works with bitcoin as something more than just a way to move between fiat currencies, price stability is a must.
Price of what? Well that's a good question, right now for me, its the price of USD in BTC. I can't seem to spend BTC on anything useful to me right now, so on it's own it's a useless store of value to me personally. Without an BTC "economy" it doesn't make sense to hold bitcoins for non-speculators. In a way, just holding onto bitcoins longer than a day makes one a speculator. I don't see any benefit to holding bitcoins. Bitcoins are not very usable for most peoples needs, ie rent, fuel, electricity - YET. But that's the point, that yet will be pretty far out, and may never occur. It's a huge risk to hold onto bitcoins for the future yet moment.
I am sure someone can point to a few cases where bitcoins are accepted, but these are the marketers/evangelicals of bitcoin. At this point, t's really like the fabled SMS coke machine, it keeps being talked about year after year, but never gets any traction, from Finland to New York
http://www.mobilemarketer.com/cms/news/commerce/10231.html
