For financial assets, the term "crash" has typically meant a drop of 20%. This would apply to the recent bitcoin decline from $1,200+ to sub $1,000.

Edit: 10% drop is considered a "correction". 20% drop is usually a bear market.

These fluctuations, however, show that Bitcoin cannot fulfill one of the central functions of currency: Exchange for goods.

How many of these multi-dozen-percent downward fluctuations will it take before those storeowners and shops that take bitcoin stop doing so or start maintaining an insane markup on Bitcoin prices?

I just bought a $1000 plane ticket a few days ago for bitcoin. Seems like that's fulfilling the role of a currency.

You should know that you don't actually have to hold bitcoin to accept it as a payment method. Services like Coinbase let you instantly exchange it to cash if you use their merchant tools, so the merchant is actually exposed to zero risk.

Ah, that explains it. It would be interesting to know what mechanisms Coinbase et al use to avoid balance sheet fallout by sudden downward fluctuations.

They would have to employ some sort of currency risk hedge. http://en.wikipedia.org/wiki/Foreign_exchange_hedge

Easier said than done when you don't have an actual currency to hedge against and the complete lack of a functioning options market.

That's the thing. Bitcoin needs to grow a LOT more before it can start becoming stable.