Daniel A. Nagy 3:00 PM on Nick Szabo's blog at blogspot called Unenumerated in May 2011, this snippet lifted from a conversation with Nick.
"It's not just deflation against which BitCoin is defenseless. Given the lack of feedback, it is just as susceptible to inflation:
Suppose that mining costs catch up with market price. Then, for some reason, market price falls as people sell off their BitCoins. Some miners stop. Some may even sell their equipment and quit the network altogether. This will not reduce the supply of BitCoin, just makes the system a bit more fragile. Those who stay in the mining business will see their rate of mining increase, and rationally anticipating further fall in prices, will also increase the rate at which they sell BitCoin, fulfilling their expectation.
People with BitCoin savings liquidate, some businesses stop accepting BitCoin.
BitCoin's market price falls further. The limit is zero. No feedback to stop the ensuing inflation caused by the general shrinking of BitCoin economy. More and more BitCoin chasing fewer goods and services (and currencies).
This is what I actually expect to happen after the current bubble bursts."
Damn. And he was totally right, the bubble burst in 2011, and that was the last year that Bitcoin sold for more than zero.
well there is a feedback to stop it and that is the limited supply.
the economics of bitcoin technology are sound
especially when the price drops
imagine an entity would set a buy wall of 4,2 billion dollar on an exchange - the price could never be lower than 200$ again. the same obviously holds true on every price level given