Hugolp, I agree with your basic premise, that $20-$32 was the bubble, but that only lends some confidence to the 'commodity' nature of bitcoin (wave v greater than wave iii). I believe bitcoin is seeing a recession in the business cycle (wave II). I also believe Japan is experiencing the fall from a business cycle, in fact the entire fiat monetary system is experiencing the unavoidable decline of a century scale cycle. In the July thread "The Dichotomy Of a Bubble - Why Bitcoin Will Endure
", I/we made the same argument that bubbles have symmetry and it stands.
Mt. Gox Bitcoin May to today (late July 2011) vs.
Nasdaq Composite 1994 to 2008
However, regarding the nit-picking, obviously nominal supply is greater than demand. That's 101. My assertion is that the supply GROWTH (0.1% daily) is insignificant compared to the swings in demand and speculative exuberance and despair, which have averaged 1.5% depreciation since June, but with daily swings of 25-50% not uncommon.
Markets do not behave linearly. You are supposing that an increase of the money supply of 1% should make the price go down by 1%. This is not true. In the very long run tends to be a direct correlation between the money supply and prices, but the relation does not hold in the middle and short term. You can see this for example when central banks intervene in the currency market, the decrease in price when they sell their currency does not correspond to the increase in the money supply they produce.
The reason is again basic economics. The more you have of something the less you value having one more. An stupid example, if you go traveling 15 days and loose all your shoes, you will be willing to pay a very high price to get 1 (or even 2) pairs of shoes, so you can go around. But to get your third, fourth,... pair you wont buy unless the price is lower and you consider its a good deal. This economic law has a name that I dont remember now.
Some people want to have a bunch of bitcoins but the more they have the less willing to pay a higher price they are. Its different for each person and more importantly it does not have to be linear, very probably its not linear. So once you start increasing the money supply, the price does not react linearly.
One MIGHT argue, though he'd be hard pressed to prove it, that miner supply triggers an avalanche of selling in a declining market, but that would only lend weight to a bubble/ponzi argument.
I actually think its the other way around. Its a good thing the price is so low. There was people complaining about the deflationary nature of Bitcoin saying that it was a way for early adopters to profit since only a few people knew about Bitcoin back then. Well, now Bitcoin is famous and its cheap, so anyone willing can jump in. Its the distribution phase of Bitcoin.
Btw, I agree with the part of the fiat currency imploding right now.