Quote from: twolifeinexile on January 16, 2013, 03:41:12 PM

The question in my original post is if the "saving" habits together with the deflationary aspects of bitcoin cause its overall impact on economy limited in scope. I fully expect bitcoin to be successful as a special "asset", but as a "currency", if it is constantly appreciating against other everyday life assets like housing/food/energy, then if people have choices of token asset to spend (either a fiat currency, a bitcoin, a central controlled electronic currency, a whatever medium of exchange with certain popularity), people will choose the one has high probability of depreciating in value to spend. The supplier, on the other hand, is in the position earning money, so usually want to accept what ever that is popular/liquid in nature. ( He can then later exchange this popular currency into a currency that is deflationary to "save" or "hoard" ). By the mechanism of these micro-economic behavior, deflationary currency have a tendency to quit the market ( as a currency, not as an asset)

That is a well thought out argument.

I think I'll argue against the tendency of bitcoin to quit the market I'll argue that as bitcoin does leave the market, it will increase in value. Some news outlets might even start claiming "Hyper deflation!" and there may be a public panic around the enormous exchange rate BTC/USD.

However, such a process does not affect the market: purchases made yesterday for $14/BTC1 were fair, and purchases today for $14/BTC0.01 are also fair.

The primary effect of such a hyper-deflationary trend would be to devalue USD: even if there isn't USD hyper-inflation, the opportunity cost of not trading using BTC will have a downward effect on the USD.

However much the USD gets devalued, it will continue to be the common worldwide currency; BTC as a currency will only be on the fringe. Therefore think of BTC like gold. Even if gold prices skyrocket, and some stores will even trade in gold, the market doesn't come to a screeching halt.

But if gold prices are going up by 100x, you should buy gold!