So, if you view bitcoins as a stock, you are right, the fundamentals aren't there, but its not a stock. As a currency, the fundamentals are there, but until you can quant the demand for alternatives to gov based currencies and the transacitonal demand, it will be tough assigning a "correct" price for bitcoins and thus the market will be volatile.
Of course, there are ways to deal with it, and there are even ways to profit from it. But for average users of currency - used as currency, not as means of gambling - bitcoin right now is absolutely wrong. I would go even further and say any business that accepts it and doesn't do it for the tax/law enforcement evasion reasons is doing it for PR reasons only.
>>>> As a currency, the fundamentals are there
I don't understand what you mean by this. Currency as such needs no fundamentals as long as there are people willing to accept it. But currency as money is different from currency treated as an investment commodity. Confusing the two is a dangerous mistake IMO. And I see no fundamental reasons driving recent rally in bitcoins - could you name one? Please don't talk about weakening USD - if that would be the reason we'd see rallies in all traditional physical commodities used as hedge against fiat currency - such as noble metals, and we'd see other commodities raise at least in similar manner, and we'd see it in relation to other currencies too. While modest raise in bitcoin could be explained by weakening dollar, it's no way even near what we see here. So any other ideas?
When I say "fundamentals" I am using the financial form of the word, as in the method of valuation that contrasts to "technical" analysis by trying to examine what actually comprises the price of something rather than just looking for patterns in how it behaves. A good discussion of the "fundamentals" of a normal currency can be found here (most of which don't pertain to bitcoin, but just try to think analagously): http://www.investopedia.com/articles/trading/04/031704.asp
I think you may also want to look into the "functions of money". As I was describing in my post, money doesn't serve just one purpose and while bitcoin is terrible at some of these, such as "unit of account", which all of: "predict your profits, give forecasts to investors, make long-term plans" fall under. On the other hand it actually functions fairly well as a means of exchange due to the fact that as prices fluctuate so can the value of the currency, something that physical currencies have a harder time doing. It isn't perfect and long term deals may require hedging, but as you allude to, there are ways to deal with this.
Hopefully this clarifies some of my points.
edit:some grammar
Nobody knows how useful it is, how much people will like it. However, they are guessing that in the future, as more people hear about it, more people than now will use and like it.
At some point this growth curve of speculative investment will peak. The utility-for-transactions curve will "catch up with" it.
Of course, that stability will in and of itself make it more viable and hence more valuable, so it is all told quite a complex dynamic, as that affect will need to be factored in by investors ahead of time.
