I struggle to follow your logic here...we are obviously on a different page.

When we analyse a market, we do not look into total coins in existence, we are only interested in the coins in circulation, i.e. traded on that market. That's because the coins in circulation effect the market. Also, there are separate markets, $ is a separate market, € is a separate market, then those fiats traded in different exchanges are also different markets.

In my example, I was referring to one particular market - USD@MtGox. Also in my example, as soon the merchant (or the hypothetical seller of goods I used in my example) accepts the BTC, he would go to a market of his own choice and sell the BTC for fiat, as his input costs would be in fiat. And that's what would cause the price at that particular market to tank, as I mentioned previously, on my estimate, to around 30%.

And that I see cannot be possibly good for the economy, it will upset a lot of bullish investors, it may even cause loss in confidence in the prevailing trend, possibly cause panic sell, from there on it is everyone's guess what will happened to Bitcoin.