The reason Mises needed to supplement his theoretical explanation of the purchasing power of money with his historical “regression theorem” was simply to protect the explanation from charges of infinite regress. In other words, since Mises was explaining today’s purchasing power of money (ultimately) by reference to its purchasing power yesterday, Mises needed to come up with a way to stop the explanation at some finite point in the past. He did this by saying at some point, the monies gold and silver (or other commodity monies) were mere commodities in a system of barter. Economists already knew how to explain relative prices in a barter world, so Mises could stop, having completely explained the purchasing power of money in a logically coherent way.
We can give a similar explanation for Bitcoin. We can trace back its purchasing power until the point at which Bitcoin was invented. Certain people really did sell pizzas and other goods against bitcoins in the first transactions. Why did they do so? I don’t know; ask them. But the point is, they did do so. That gave everybody an objective frame of reference for the market value of bitcoins, which then snowballed to the present day.
In closing, let me be clear that I am not necessarily predicting that Bitcoin will one day be used by billions of people as a primary money. Rather, I am merely arguing that the argument against Bitcoin citing Misesian monetary theory—such as Shostak recently used—doesn’t work.
09 May 2014