The deflationary spiral argument goes as following: Let's imagine an economy that only uses Bitcoin, solely, as currency. When the productivity rises, the price of goods and services decreases.
Bolded above assumes profits and gains made from increased productivity trickle down to poor and middle class earners. If trickle down economics MMT (modern monetary theory) pan out, the statement is accurate. Else trends could move in the opposite direction. Taxation, regulation and other things also factor in to the overall effect.
One key aspect to economic theory is it does not acknowledge every relevant aspect of markets and finance. Most armchair economic philosophers are not investors or traders of assets. They do not take their economic theories to the real world to test them, with their own money.
Market traders who work with their own money, usually have a better comprehension of markets, economics and finance than armchair philosophers IMO.
But, this has a negative effect: People are more discouraged to hoard their currency, than to let it circulate. This stagnates the economy as consumption drops. And when consumption drops, so does the production, because the profit decreases along with the demand.
How many people "hoard currency"? I think most would prefer to have their currency in a bank account where it can earn interest. "Hoarding currency" is an urban legend, unless we're referring to international reserve currencies being hoarded in regions with high inflation.
I would contend: declines in consumption are more closely correlated with high taxes and wage stagnation than they are currency hoarding.
Bitcoins deflate in value when the Bitcoin economy is growing, but doesn't deflation often contribute to lower economic growth?
I think deflation can hamper borrowing, lending and credit in loan markets. But bitcoin isn't expanding into loan markets for real estate, student loans or cars.