I agree with this. Bitcoin does not have a "killer app".
Silk Road?
Ok, maybe 'killed by app'
Mainstream can only mean major merchants adopting it. Not the mom and pop socks, fringe esoteria and undergrad webdesign type peanut markets but a seriously large one like bol.com (Bertelsmann) or Ikea. But I don't think that's very realistic right now.
A persistent economy will justify BTC, not matter what the price.
A persistent economy justifies BTC, but not any price. If 60k traders have on average put $100 into the economy, then that should be the real valuation (6.7 million BTC/6 million USD -> 1 BTC=~0.90 USD). I came to a similar back of a napkin calculation based valuation of the actual economy using Bitcoin (<5 million USD -> <0.8 USD/BTC). Add reasonable speculative margin and it's still not worth anywhere near $15-20. Also factor in 50% inflation from mining this year, 33% next year, I'm pretty sure that kind of growth is not happening on the economy side without a different kind of participation (i.e. I have a feeling the technologically savvy/mental contingent who would accept BTC already do, this market will not grow by 50/33% anymore). If the miners don't cash out, the nominal value diverges from the theoretical one by that amount.
The price must eventually track the size of the economy. Don't make the mistake of extrapolating economy size from all BTC at current price, because most BTC are actually 'worthless' in the sense that they have been mined at near 0 difficulty and aren't participating in the economy (add up the entries in the
rich 100 list which haven't moved in blockexplorer). When they suddenly do, at current valuation ($16), the socks and undergrad free time instantly run out, as does exchange liquidity. Which is exactly what you saw in the flash crash, even though that was done with the express intent of driving price down.
You could look at it another way: even though the Mt. Gox attack was dumping ~500k BTC at 0.01, there were still not enough orders to satisfy more than half of it. 260k+ went to an opportunistic 0.01 USD order. If we take the wildly speculative average of 17.5 and 0.01, i.e. 8.75 and multiply that by the ~240k that did go through, we get a liquidity of 2.1 million USD. This is a good indication that the economy cannot be much larger than that (i.e. not orders of magnitudes larger, like a ~200 million USD valuation at a $30 high).
So then you arrive at the speculative value for future expansion of the economy. This simply means that sure, $20 may be reasonable, if you do expect 180 million USD influx within a certain amount of time. The question is, what is this amount of time, and will everyone holding on to BTC keep waiting for this. (the influx itself is possible, there is no $1000 a day limit for putting money in AFAIK, and this limit can be lifted anyway)
Speculative valuation is just that, gambling with the future. Even gamblers have cut off dates by which the gamble has to pay off compared to a traditional investment's return, or a different gamble will be made. When that cutoff date arrives the price must drop and if the gamblers are large enough, it will implode. That will make a large dent in the economy (merchants holding BTC from daily trade will suddenly take a large hit) and many will lose confidence/leave the market, which could end up in a death spiral.
Then there are two other major factors noone seems to take into account: even if speculators hold on and Bitcoin putters on for years without significant leaps, long before then there will be a more or less effective crackdown, and/or preemptive strikes in the form of competing currencies, not to mention the possibility of a protracted smear campaign that will prevent Bitcoin adoption to any significant degree. That eventually means the deathspiral described above.
This danger should offset the speculative optimism and lower the price accordingly, which hasn't happened yet.
BTW, any services around Bitcoin like option markets, banks, podcasts and magazines do NOT constitute a productive economy, they may only enable it. Without agriculture and industry, hairdressers, speechwriters and telephone sanitizers will meet an altogether different fate than they expected
