This is not a problem inherent to deflationary currencies. It's also true within inflationary currency systems when the inflation rate is too high.
So we agree deflation and hyperinflation are both bad
At least with hyperinflation you could compensate with higher interest rates. If interest rates are higher than the inflation rate, I dont see why I wouldnt lend.
Quote
That's the real issue; not that Bitcoin is deflationary (it's not really, and won't be until at least 2100),
Currently its actually incredibly deflationary if you define deflation as price deflation. If you are only referring to the increase of money supply, then it wont take nearly that long for the supply rate to be exceeded by the economic growth rate. If you only look at the bitcoin economy thats obviously already the case and thats only going to get worse if you have any confidence in bitcoins adoption.
Quote
the problem is that the rate of change of the exchange value is too high for such long term contracts to be sensible. The current and past instablility is a consequence of Bitcoin's adoption rate, not any particular flaw in the system, and certainly not Bitcoin's "deflationary" nature. It's simply not a mature economic system, yet.
Volatility is another problem which does hinder its adoption but it has nothing to do with inflation or deflation: If bitcoin reward halving protocol were devised differently so it would perpetually grow by 1 or 2% per year you would still have that. I do agree volatility is mostly because its so new and its unavoidable; but its not the fundamental problem I see with it.