[Symmetry]

Well, in general the price level of bitcoins, how much individual bitcoins are worth compared to other goods, is going to end up being governed by

  MV = PQ

Where M is the quantity of bitcoins, V is how fast they criculate, P is the price things in bitcoins, and Q is the size of the economy that bitcoins are used for. Since the bitcoin design prevents M from increasing that much, and since V tends to fluctuate a lot but remain stable in the long run, you should find that the value of each bitcoin mirrors the size of the economy that uses bitcoins in the long run. So buying bitcoins is essentially a bet that people will use them for more and more things.

With US dollars the government (or central bank). tries keep M at a level where Q doesn't move around too much, but bitcoin doesn't and can't have an institution like that.

[conroe64]

I think you need to include speculators in your equation. If S is the number of bitcoins being horded, we would get (M - S)V = PQ. Since the perception seems to be shifting where more and more people believe that Q is going to continue to increase, S becomes larger (and in extreme cases, a bubble).

[Judson]

No need for "S". Hoarding is accounted for by a drop in V.

[SkyMarshal]

>you should find that the value of each bitcoin mirrors the size of the economy that uses bitcoins in the long run.

Your equation is actually saying the opposite, that the value (P) of each bitcoin is inversely proportional to the size of the bitcoin economy (Q):

MV = PQ => (refactored) =>

(MV)/Q = P

Hence P ~ 1/Q.

Thinking about it more, I think you may have Q and M mixed up. From a supply/demand point of view, the greater supply of bitcoin (M), relative to demand at least, the lower the value (P).

If we assume aggregate demand can be approximated by overall size of the economy that uses bitcoin (Q), then

P ~ Q

and

P ~ 1/M

so

(QV)/M = P

hence

QV = MP

Right?

[Jd]

I think Q is closer to the size of the market rather than the size of the "economy." "Economy" implies both tangible goods and buyers and sellers for those goods. The problem with Q in the Bitcoin sense is that it can move around a lot, since it is an obvious target for speculators with no interest in tangible goods.