if you look up the volatility of all the currency pairs on the forex market, you will see that those with the highest trading volume sure the least volatile  the market in bitcoin is just too thin at the moment, and as time goes on and it becomes more widely used, trading volume will go up and stability will increase.  you mentioned the flash crash.  that was the result of all the high frequency traders, the speculators, the market makers pulled out, and there wasn't the usual liquidity, and as the sell orders came, the bids just dropped off the whole order book.   i was doing manual HFT for a small hedge fund at the time, that's what happened.

You have it backwards.  Gold is much more stable than the dollar. everything is just a ratio its XAU/USD when that goes up, it could very well be the dollar going down.  Which you can tell that it is because if you chart gold against other commodities and assets, you will find that the assets are correlated with gold, not the dollar, so it is the dollar that's really doing the moving. We have seen a 94% devaluation in the US dollar.  Money is supposed to be a store of value, not  a secrete government tax machine.  How do you think the government funds wars bail outs etc.  it prints money, which is taking away value of your money, so everything costs more.  the CPI leaves out fuel and food so much of the inflation is missing.  also check out shadowstats.org the calculate the CPI and unemployment the way the did up until clinton.  Bush changed it which essentially cooked the books.

A little bit of deflation can be a good thing, in an economy that doesn't wildly print money,and fuel a highly leveraged fractional reserve banking system.   People don't need to be forced into spending money, whenever the government is trying to stimulate consumer spending, it's in a time when the consumers need to ne saving, and recovering, people buy things and invest all the time.  Also as for bitcoin, if the whole world used bitcoin, and everyone just stopped spending it the global economy, it's wealth would stop growing, incentivizing people to do all the things that the fed pretends to need to control.

There's more to economics than what's written in a textbook by Mankiw, your professors don't know everything.  Though in the end you are a Keynesian through and through you are going to have problems with a currency developed expressly with and on  Austrian Economic ideals and principals.  When it works the Keynesians will see you don't need a central authority manipulating, and distorting the economy, which always leads to disaster. Central bankers are part of the government, and thus they will always have political pressures and motivations, leading to, say holding interest rates down at 1% after 9/11 way too long and creating a huge bubble.   

nd the reason we aren't seeing crazy massive sick nasty inflation from the money the banks are printing is because it's being hoarded by the banks, then lent back to the government  through treasury buys so the banks can heal and make money on the intereest rate spread from the fed to treasuries.  Which is just taking that value away from every other holder of the us dollar.  If that money comes out there's gina be big trouble.  Though the fed thinks they can thread the needle and stop injecting the economy with monetary cocaine, just when its cracked out enough to move it's broken ass on its own, right before its (our economy's) hear explodes.