This means that is to everybody's advantage to hoard currency, since it gets more valuable the longer you hold onto it.
I believe the word is save, not hoard. Deflation does not work like you think it does. Money is just like any other good in the economy, and so its price is set just like every other good -- by supply and demand schedules. There's nothing special about money that exempts it from the normal way we analyze goods. Under your logic, the same would happen to stocks. If a stock goes up, then people would buy more of it and it would become a "vicious cycle" of price increases in the stock. Yes, there are bubbles due to bad judgement, but the idea is the same: the price of currency can go up and down. When it goes up too fast, that just means that it hasn't found its correct price point yet. The price of money doesn't change how many goods are produced. No one is going to say "Darn, I can't sell for 0.0005 BTC, I'll have to set the price to 0.0004 BTC and pay my employees 20% less. I don't want to do that. I'll just stop producing anything and let my capital rot!"