Bitcoin Deflation and Economic Activity

What is important is NOT deflation vs inflation, but to keep that value _stable_. USD inflates at a rate of 3% year over year, so we can compare investment vehicles against the rate of inflation and see whether or not they are good deals.

But since BTC is extremely volatile, its impossible to use it as a unit of value. Until it settles down and becomes predictable, it will become impossible to form a "BTC Economy".

Assuming that it reaches widespread use ignores the chicken and egg problem that producers of goods will not want to use it if the depreciation is too high. Currently you can spend bitcoins mainly through intermediaries and various online purchases that quickly convert the BTC to some fiat currency. I.e. pay a company for server space, they quickly turn it into dollars or euros to pay their electricity and employees.

But to be a legitimate, full fledged currency it will need to both be a reliable store of value (low volatility) and be useful for producers (minimal depreciation). It has neither right now, and I personally don't see a path from the present state to that ideal equilibrium.

  After some careful calculation, you determine that it will
  cost you 1 BTC to produce, market, and sell a single widget,
  and that it is only worth your effort if you can sell each
  widget for 2 BTC, a handsome 100% margin.

  ...fluctuate wildly for the foreseeable future like the
  value of gold has done and is doing.

Because you have no choice. Currencies are imposed by a ruling power (in our case the government) by force. When you choose your currency is usually in form of asset. But you can not pay your taxes in gold. Consequently you can not live in the USA without USD and in Europe without EUR.

2) Supposing 90% annual deflation forever, as this article does, is disingenuous. Bitcoin is currently a 5 year old technology, and of course it will have periods of significant volatility. In the long run, bitcoin will stabilize, and deflation will be on the rate of global economic growth, currently estimated at around 2%

That’s speculation, might be correct. No one knows.

3) In the long run, people could keep their wealth denominated in bitcoin, and spend dollars. There you have the best of both worlds: your wealth storage is deflationary, and your spending currency is inflationary.

As that’s exactly how it should be. Currencies are inflationary to induce consumer spending more today.

edit: 4) Perhaps most significantly, remember that bitcoins and dollars are exchangeable at any point in time. Any dollar you spend on goods/services is a dollar you could have spent on bitcoin. Have bitcoin enthusiasts completely stopped spending dollars on goods/services?

Did they ever do that? Bitcoin enthusiasts never used bitcoin for buying services. BTC buys you anonymity where is required that’s a revolutionary quality for a currency to have. But other than that, bitcoin has nothing to offer compared to fiat currency for daily transactions. Changing money from BTC to USD (and vice-versa) is not enough straight forward, as of today, to allow the majority of the population to use it. If I give you 10 BTC today, you need days to turn them to USD, while if I give you EUR, you needs hours probably maybe minutes.