An alternative strategy I would prefer to limit volatility - but that involves the selling of goods and services - is that merchants could back the price giving "price guarantees" for their goods for a certain period (e.g. a day). This would, however, only prevent crashes, but not spikes to the upside. See here for the idea.
The advantage over a "backing the BTC price with fiat" like in your proposal is that goods cannot be easily "traded back" to Bitcoin, so the merchant would have huge transaction costs if he wants to game the system buying all available items, and also that "non-scarce goods" like digital goods would make this kind of attack entirely impossible.
The advantage over a "backing the BTC price with fiat" like in your proposal is that goods cannot be easily "traded back" to Bitcoin, so the merchant would have huge transaction costs if he wants to game the system buying all available items, and also that "non-scarce goods" like digital goods would make this kind of attack entirely impossible.
That sounds reasonable.But at the end of the day we need to consider what makes the price of Bitcoin. Until now only big and "trusted" exchanges are counted. If we are to "impose" guarantees for x prices at y moments almost every price observation algorithm should have to include big merchants and at the same time BitPay, Coinify and other api providers should agree at the spreads of the price (eg at 19/6 UTC 00:00 the price stands at 2000$ & we guarantee this value until 12:00) but again the interval is big and they could lose or gain considerable amounts of fees if they are to convert their coins to fiat asap.
