[mrb]

Bitcoin needs no monetary policy for the same reason that gold needs no (and has no) monetary policy. Do you consider gold as a "flawed" market? Of course not.

People feel confident using gold as a store of value, because gold, like Bitcoin, is not tied to the activity of a single country or economic zone. Therefore the valuation of Bitcoin should average out speculation/sentiments on the worldwide financial markets, and this alone should provide sufficient stability.

Sudden changes of value can only happen when there is not enough liquidity. Bitcoin was not very liquid last year, which explains the valuation bubble of June 2011. But as Bitcoin's user base grows, liquidity should continue to improve, and should reduce the risk of the same bubble re-occurring again.

[Petrushka]

Gold has a number of internal checks to massive price swings that Bitcoin does not, however. First, and most notably, it is a fully developed market that has been around for thousands of years. As such, it is easier to get a handle on for investors. Currently, gold is seen as a fantastic investment, primarily because of the economic emergence of India, where gold is seen as a marker of social status and is one of the most sought after products. Generally gold, as a luxury item, runs essentially concurrent with overall market trends. People buy it when they have the money, and don't when they don't. As such, it isn't all that difficult to predict in the long term, although you also don't get much increase in value, even over the long term. Gold will always have value in markets that have a base layer of wealth, and time has confirmed that you can be pretty certain that places like the US and Europe will have that base layer. Gold also, as a physical object, is not subject to the same extent that Bitcoin is to fraud, an important point considering its history. In a purely theoretical sense, no Bitcoin is not any worse then gold as a means of investment, although Bitcoin being a currency, and notably one that is only narrowly used, does hurt it, due to the ability for sellers to turn on and off their acceptance of it.

One last thing to remember. Even with gold's predictability and high price (assuming the US doesn't dump its cache on the market at some point) the US decided in the early 70's it wasn't secure enough of a product to base the US currency on. Bitcoin is significantly less stable then gold by a factor of thousands, and that's not even including its susceptibility to hacking (or, more precisely, to hacking its marketplaces). Bitcoin is also to small to ever have the amount of liquidity necessary to assuage the rest of the financial markets. Again, the issue with Bitcoin isn't internal. The issue is with it being strong enough economically to not scare off the rest of the world's financial system.

[mrb]

I agree with all that. Yes, the only reason that gold is a stable investment is because of its large, mature market.

My point is that time will naturally take care of this for Bitcoin: volatility will reduce as its use around the world increases. And since Bitcoin has already proven it could survive its first 4 years where volatility was at its highest, then it is likely to continue to survive and grow without a monetary policy. Boostrapping Bitcoin was the hardest part, and this was accomplished successfully.