I'm regularly reading articles about how deflation [sic]* will kill Bitcoin, and I'm just not getting it. I'm not an economist (as is true for many of those writing said articles), but let me put this in laymen terms with an example, and see if anyone can poke holes in it.

Some time in the not too far future:
Average Joe decides to put some of his money in bitcoins. Not only have they a tendency to increase in value measured against most fiat currencies, but they can also be used to buy a lot of stuff, especially online. The valuation is somewhat volatile, and he has been warned that bitcoins might be entirely worthless at some point, so he decides to limit his holding to, say, 10% of his savings, although he starts out with a lower amount, say 5%.

Since the of the value of bitcoins tend to go up, he ends up using dollars for most of his shopping and only use bitcoins when there is all but no choice. [Gresham's law; this is as far as I can tell, one of the main attacks mounted in articles worrying about the slow increase in bitcoin money supply]. He only uses bitcoins when there are large savings to be had, like when paying small amounts or at places like bitcoinstore, or when paying sites that are abroad or seem too shady to leave a credit card number at (Average Joe has a weakness for HD-porn).

Now, focusing on the monetary issues, one of two "bad" things could happen to Bitcoin:
1) The value of a bitcoin increases slowly over time. Mr. Joe is happy with his bitcoin holdings, but find that even though every coin becomes more valuable, his total holdings are shrinking. Since it has been a good investment so far, he replenishes his holdings to 5%, or maybe slightly more.
2) The value of a bitcoin increases rapidly. Mr. Joe is spending a fair amount, and still sees his holdings increase in value. Once his total Bitcoin holdings approach 10% of his savings, he start spending bitcoins for stuff he could equally well buy with fiat, or sell some of them. Over time he decide to increase his holdings above 10%, but only slowly, because economy experts on TV keep reminding him that the value will collapse one day.


Now, I'm aware that these two are not the only possible outcomes for Bitcoin, but they seem to be what economists worry about. So let's not discuss stuff like bitcoin value dropping, quantum computers breaking encryption or governments outlawing bitcoins here. As far as I can tell, Mr. Joe's behaviour in situation 1 will contribute to keep the Bitcoin economy stable and thriving, while his behaviour in situation 2 will contribute to move the Bitcoin economy towards situation 1. Can someone please point out for me what the big problem is, or where I have made a fault assumption?

* Bitcoin money supply is currently not deflating and will not for a long time. The word is often used to describe a decrease of prices, which is not it's original meaning.