In the above example, the pool water is all the wealth in the Bitcoin system and the sponge is SD. The lake is the wealth in the USD economy. If Bitcoin and USD switch places, SD does not change - only its share of the overall economy does. So unless SD grows to maintain its proportion to the total amount of wealth in the system, the share price will decline relative to the metric - in our case, BTC.
Ask yourself whether a gambling site can comprise 10% of the Bitcoin economy for years when there are so many businesses jumping into the system.
A corollary of this is you shouldn't buy any bitcoin business shares. If bitcoin succeeds their BTC share price will almost certainly dive due to deflation. It might be soaring according to the USD yardstick, but you would have been better off just holding BTC. If bitcoin fails the shares will probably be worthless. Actually this isn't quite right; the bitcoin shares would be worth buying if their dividend rate makes up for the appreciation of the BTC, which probably means extraordinarily large.
You are right. I thought sdice would be a good protection against collapsing btc value, but that was not the case as the sdice shares did not go up when btc dropped drasticly. So when btc goes to the moon, you are screwed with sdice (or any company) as it just doesn't go up and instead tanks in btc value. And when btc collapses, the sdice valuation also does not go up to compensate so your losing too. The only time sdice has outperformed btc was when btc prices were trending trending sideways or slowly up, as was the case from the last half year of 2012. Let's hope we get that again as I'd like to see sdice regain some of it's btc value.