The critical thinking of the future of Bit coins-Based on the Gresham's Law

From the graph above, In April 2013, it shows bit coin-the digital currency spiked at $266 before plunging to $ 105 in wild ride conceivably  related to Euro crisis.(the guardian, 2013) Zoe, a editor from international business times, announced bit coins were flourished during Cyprus’ banking crisis due to worried European investor purchase of the entire currency in the face of the woe (story here). During past time, most individuals were perpetually overconfident of the future of bit coins. In my view, as I said before, such enthusiasm perhaps be premature (for more details, please see my last post).

In order to explain my point in a clear way, I would like to introduce the Gresham's law to see this problem for my readers. The applicable condition of Gresham's law is based on the gold standard. Comparing with gold, in essence, bit coins has the similar phenomenon which we can indicate that they have  the convergence nothing but one is digital(string of long database code) the other is 'real' currency. As I have described the decentralization one of the four features before, bit coins are not subject to the central bank. Also the supply of bit coins will stand still in the short run, if the price continue to soar, when you are possessing a great deal of bit coins, you will not sell them at all. Instead, you prefer hoarding these money which can lead to a reduction of liquidity. In perspective of Gresham's law, bit coins will be driven out of the financial market as a good money. Unless these digital currency being 'bad', individuals would spend them.  When such situation occurs, bit coins start to stop circulating. In reality, as a none fiat money, there is no face value of bit coins. Otherwise there is no intrinsic value based on the materials. The value appears when the voluntary exchange exists for bit coins.

In words, even we are confident that there cannot be a inflation. Once bit coins become a good money, that perhaps submit to a deflationary spiral that causes individuals or industries to abandon bit coins. Under this case, it is probably to lead a financial panic because there will be a everlasting downturn about the previous value of bit coins. Thus, a foreseeable crisis will burst.   

Reference: 

Philipp Güring & Ian Grigg, 2011. Bitcoin & Gresham's Law - the economic inevitability of Collapse. (link here)

David Mint, 2012. Bitcoins: What they are and how to use them. (link here)
Grinberg R. Bitcoin: an innovative alternative digital currency[J]. 2012. (link here)