Value based on belief that the value will increase makes the currency extremely volatile. (I am tempted to believe the characterization of Bitcoin as "an infinite bubble generator".)
So I think the question people will come to ask themselves, eventually, is: given that the currency is volatile, what amount of it is worth holding anyway just to save me the inconvenience of buying Bitcoins before I go to spend some? The average answer to that, multiplied by the number of people using Bitcoin at all, will, I think, put a floor under the demand for Bitcoin. I don't think it will be a large number per person: maybe $20 worth. But multiply it by a large number of users, and the total number of Bitcoins sitting in wallets -- which, critically, won't get sold even during downward price swings -- may be quite substantial.
Volatility is a result of uncertainty. The more people share the same belief, the more stable this belief will be. You see tons of people around you confident in short-term safety of USD and you stay confident too instead of selling every buck for gold, silver, gun powder and bitcoins. When Bitcoin becomes world money, it will be so stable (and slowly appreciating) that people can price goods in BTC directly.
So I think the question people will come to ask themselves, eventually, is: given that the currency is volatile, what amount of it is worth holding anyway just to save me the inconvenience of buying Bitcoins before I go to spend some? The average answer to that, multiplied by the number of people using Bitcoin at all, will, I think, put a floor under the demand for Bitcoin. I don't think it will be a large number per person: maybe $20 worth. But multiply it by a large number of users, and the total number of Bitcoins sitting in wallets -- which, critically, won't get sold even during downward price swings -- may be quite substantial.