I still think that the deflationary tendency of bitcoin is damaging, for example because it creates speculative price bubbles.
What creates price bubbles is not the deflationary nature of Bitcoin (which we aren't even observing yet); it's the fact that the supply is perfectly inelastic. With most commodities, when a speculative price bubble begins to form, profit motive drives production to increase, and the increasing supply counteracts the growth in price. But Bitcoin is different: no matter what the price does, the production is always at an approximately constant rate. Thus, there is no moderating effect on an increasing price, and we get speculative price bubbles. I personally believe we will continue seeing this "plateau-ramp-crash" cycle throughout Bitcoin's adoption. However, I do think it will moderate in amplitude as the market grows.
If it ever does. The actual bitcoin market, in which bitcoins are used to pay for goods and services, is tiny and would currently only warrant a bitcoin price below $10. All the rest is people who buy bitcoins because their price goes up, and the price goes up because they buy bitcoinsthe perfect vicious circle, producing a huge price bubble. When this bursts, i.e. when they begin to sell bitcoins because their price goes down, and the price goes down because they sell bitcoins, it will not be a pretty sight.
Unfortunately I am pretty much unable to predict when a price bubble will burst, so at this time I can only sit on the fence and wonder. But I'd be grateful for any ideas on predicting price bubbles.