If it was just organic growth in the currency I wouldn't say there was an issue but if you look at the transaction volume it's clear that the surge in trading that occurred both a week ago and just recently is what is responsible for the latest increases in value. I don't have enough evidence to say that the price has been deliberately manipulated upwards, and indeed the increase could just be a reflection of the higher demand, but it does call into question how stable BitCoin can be.
I'm not an advocate against BitCoin, far from it, but I honestly believe that a highly valued BitCoin is the worst thing it can have as a fluctuating value doesn't benefit users of the currency. The only people who benefit from a high price are the speculators and investors, those who are at odds with BitCoin being a proper currency.
You do not see deflation with fiat currencies because the issuers of the currency print more to counteract deflation. Gold however is prone to extended periods of deflation, and that does not prevent gold being useful as a medium of exchange and as a vehicle for investment or savings. (The reason gold stopped being used as a medium of exchange is that paper money is more convenient, not because of its vulnerability to deflation.)
If your reply to this comment is that Bitcoin cannot be compared to gold because gold has "intrinsic" value whereas Bitcoins are just an artificial construction, you do not understand monetary assets.
True, gold has probably not deflated as rapidly as Bitcoin has over the last 2 weeks. That would be because the fraction of the world's savings invested in gold is much higher than the amount invested in Bitcoins. If a greater percentage of the world's savings come to be held as Bitcoin, Bitcoin's price would probably act more like gold does now.
And don't worry I'm quite familiar with fiat currencies ;)
Yet again I agree with you, the BitCoin economy needs more investment in it in order to counteract the issues that I highlighted. Thankfully that seems to be happening (I believe YC just accepted its first BitCoin based start up) and as time goes on the market should stabilize. I think that's when we'll start to see BitCoin spread outside the high tech sector and I'll gladly count BitCoin among all the other "proper" currencies.
Wouldn't surprise me if it crashes again after Burning Man.
On top of that: if you're bringing drugs to Black Rock City, you probably do drugs in default world anyway, and have a dealer back there for them.
There are metrics showing Bitcoin becoming more widely used, but there's not 100% more use in two months.
Maybe it finally registered that the upcoming block reward (to 25 BTC per block) was coming and people bought some up ahead of time.
It might make for an interesting study though, on how much stability the U.S. Treasury provides vs. an unregulated currency.
It happens with gold, which could be viewed as a traditional currency.
Value is relative, so if you only value gold then the value of gold is constant. But if what you value is goods and services, then the price of gold is extremely unstable. You can see it graphed here (CPI being a metric of the price of goods and services):
Gold used to have a stable price in terms of dollars because the central bank pegged the currency to the price of gold, which I think is the reason people like Ron Paul believe that gold has a "constant" price. now the central bank pegs the currency to CPI so CPI is stable and gold floats freely (in dollar terms). This is preferable if you value CPI price stability more than gold price stability.
Also note that gold and silver often diverge in value relative to one another, so no matter what your perspective, it cannot be the case that gold and silver have stable value. If Somebody hits a rich silver vein then silver drops relative to gold.
What is the unit in which value is measured? There is no SI unit for value, and it seems unlikely that it would ever be possible to define one - it would basically require very surprising breakthroughs in psychology.
Hence people do the pragmatic thing and measure value in the currency that is predominantly used in their life. They use USD or EUR or whatever as their unit of value.
And in that sense, the value of gold and silver is clearly not constant, as a sibling comment explains.