I'll reword it so it sounds better. It would take a price drop of 500 dollars if bitcoins were worth 1k each to halve your value. Now it only takes....... 9.5 dollars. It seems like there should be more stability simply because the price is higher(and of course the price couldn't get that high without a much larger transaction volume which might smooth things out)....
You're still treating USD as the baseline "true" value, but that's fine let's forget whether the actual USD still exists, and treat your dollars as a stand-in for absolute purchasing power. And you're making the point for me: A few percent fluctuation today just means a few dollars lost or gained, but in this future where a bitcoin is worth 500 USD (in 2013 eqivalent) purchasing power, a few percent fluctuation could be catastrophic for the economy.
(Actually, wheter you lose 500 or 0.05 USD2013 of purchasing power per BTC doesn't really matter - it's the percentage drop multiplied with the absulute size of the economy divided by a time quotient that matters. Measured in the value of everything produced and consumed in the whole world. If the world was on BTC, a 50% crash would be just as bad if we had 12 million BTC to go around or just 12 000.)
If a few people hoard/save bitcoins from when they were cheap, they could not just stop working and live off their massive fortune for generations and never invest anything into the economy - they could crash any BTC related market they wanted just by some careless buying. Even worse if somebody steals a wallet file and tries to get as much out of it as they can - another Flash Crash happens.
but one thing I like about bitcoins is that nobody knows what they are going to do.
A good thing for a high-risk speculative commodity, but not for a currency that people are supposed to use for contracts, loans, price lists, fees, court judgments etc. Even for Silk Road, the sellers have to add something to their prices to compensate for currency risk or just cancel buys if the BTC fell in value.
Remember, any actor will hold some money for spending in the future,
Except those who can't afford to save, or who have debts to pay, but still could have made a valuable contribution to the economy by working or selling goods.
have some safe investment returning near the natural rate of interest (which is based on each individuals time preference),
What's the point of putting your money at risk in an investment if it appreciates in value in your mattress? And who would take loans or investment money when they know that their loan will increase in value while their returns will sink in value? Some ventures might still be started, but only those with a fantastic return rate.
Hoarding is going to be an issue with any finite resource of value. Fortunately each bitcoin is highly divisible.
Gold is also higly divisible, but don't you think that an economy who paid for a loaf of bread with tiny flakes of gold would go into disaster mode if somebody found easily accessible purestrain gold in a supply that was the same size as all the gold already mined? The difference with Bitcoin is that you don't have that uncertainty risk - it is a certain risk that a sensible market would adjust for. Even with an assumption that "oh those Bitcoins are just in wallets that people forgot their password for", you can't know that for certain and they might crashing down on earth like a 100 m x 100 m x 100 m pure gold meteor at any minute. The only rational actor market response to that is to refuse to use Bitcoin as a currency; but humans are not 100% rational, so there you go.
