Unless it becomes world money. USD is a promise paper like stocks. Bitcoin is like a gold coin. You can fully own the real thing without trusting someone to store it for you.
You know deflationary = hold and never spend, right? Not much use as a currency if there's no flow or will to exchange for goods.
http://blog.oleganza.com/post/66953255676/transactional-curr...
http://blog.oleganza.com/post/43378777734/on-circulation-of-...
It is a solution to the Triffin Dilemma, which in 2009 the Governor of The Bank of China wrote about. That same year Russia proposed a new international reserve currency backed by precious metals and a currency basket to solve the same problem. In South America there have been proposals for a petro dollar, backed by oil for the same reason.
Deflation is good for a reserve currency, in some ways it is fairer than gold because you don't have to rely on the geographical distribution of gold in the ground.
When the Wii was making record sales in the USA, Nintendo was reporting record losses. Why? Because the Yen to USD exchange hit 80 to 1, and all of a sudden Nintendo was making 20% less revenues on all US sales.
Deflation is BAD BAD BAD for companies who work with your currency.
Do you see a symmetry of products vs. money? Both are assets that some people need and some other want to give. If one is in deflation, then another is in inflation to another. Why don't you buy MacBook 2 years from now, when it'll cost the same, but will be more awesome? Because you have non-infinite "time preference": you want certain things today vs. tomorrow.
Why people want to hold money? Because it gives them ability to spend it anytime on anything - it's most liquid, most desirable commodity. This is big value in having something in your wallet - freedom to make decisions in face of future uncertainty. If you can freely choose between money which loses in value and money which doesn't, which one every person would put their savings in? Then, everyone spends according to his own time preference - amount of desire to enjoy stuff today vs. tomorrow.
http://blog.oleganza.com/post/43378777734/on-circulation-of-...
Here's also a thought experiment on deflationary spiral: http://blog.oleganza.com/post/66215430631/deflationary-spira...
Because Japan's currency deflated, while the US currency inflated. Printing of money is simply a means to control deflation or inflation.
All of the "thought experiments" on deflationary spirals ignore the fact that one happened: the Great Depression of 1930s. And back then, the US Monetary system was pegged to the Gold Standard.
We fixed the problem by getting off the Gold Standard. It turns out, basing your country's economy on a deflating commodity was not a good idea.
Deflation is bad, we know its bad and when its bad. So should you peg a national currency to a deflationary commodity like BitCoin or gold? No. Can I use gold right now as a means of exchange? Yes. Does it happen all the time in regular life? No, because that would be a pain in the ass but if it were more convenient, it might. Well that is what BitCoin is, its gold but convenient to transfer.
Stop thinking of BitCoin as a national currency or a replacement for a national currency. It is a commodity like gold which can serve as a supranational currency or store of value, your national economy can still be inflationary.
But when you see websites saying "Pay for stuff here using BTC", it is clear that they are trying to make BTC into a currency.
Those who wish to use BTC as a currency are discouraged from doing so, as long as this stupid hyper-deflation is occurring. No one wants to spend BTC on anything anymore.
It is a currency. It satisfies the Coincidence of Wants, it is used as a means of exchange, that makes it a currency. Cigarettes have been used as a currency (in WW2 concentration camps, prison, times of famine or war etc.). But nobody suggested cigarettes or tobacco be the thing we pegged our national currencies on, its just a thing that represented value that people traded for goods and services. That's a currency, not a national currency though (because as you mentioned earlier, that's probably a bad idea which we know from history with gold).
When a country wants to buy oil for its economy, the oil price is set in the worlds reserve currency, USD. So the fluctuations between the USD and some given country, or the inflation of the USD will either hurt or help that country (but is always good for the US as the demand is high for that currency, keeping the demand strong). This is why countries/companies buy oil with gold sometimes, this is why countries hold gold to hedge inflation in a foreign currency they must rely on.
National currency (eg. USD) => Inflation bad.
Supranational currency (eg. gold) => Deflation good.
If you care about USD at the end of the day, then Gold has been a _terrible_ store of value this past year. After peaking at $1,800, Gold is currently trading at ~$1250.
If BTC follows the route that Gold has followed, we'll see a lot of sad investors.
The same problems it has had for the last 10000 years. You can't seriously expect these "realizations" to have an effect on Gold prices.
Don't mistake the forest for the trees. When BTC learns to be less volatile, THEN we can start talking about replacing USD or EUR.
Until then, understand one thing. People want STABILITY in their currencies, at least if they are going to spend it.
Agreed. People are less likely to spend as the price climbs quickly. This can be mitigated with a viable options market, it would provide a hedge against bad movement and it would increase liquidity significantly which would lead to more stable growth.
Secondly, only very recent investors may worry about volatility. Everyone who bought in 1 or more ago don't care about volatility. All fluctuations are well above their nice profit and they can spend 1% of their stash comfortably, knowing that the remaining 99% are growing in value faster that the stash is being depleted. Today's investors would have to wait another month or year before they also get 10x return and won't worry about volatility.
"Store of value" works pretty well when your value not only stays the same, but increases over time. 10% jumps do not matter if you have 10x more than a year ago.
Supply and demand have an effect on the gold price. Markets go up, markets go down.
That's the investment function of gold and other precious metals. That's why big financial organisations keep gold.