Bitcoin's only value comes from its scarcity. Should there suddenly no longer be demand for Bitcoins, then their value becomes zero. There's no government standing behind Bitcoin. There's no company guaranteeing any sort of exchange rate, nor is there any sort of futures market in which you can hedge against Bitcoin fluctuations.

That means that supply and demand entirely drive the exchange rate of Bitcoin. Your willingness to buy Bitcoins hinges entirely on my willingness to sell you mine. This goes against the "gold standard" that the neo-Austrians seem to endorse, since there's nothing about Bitcoin that's anchored to anything real. In fact, if a central bank or hedge fund wanted to play with it, the Bitcoin marketplace is sufficiently small that it would be trivial to manipulate its exchange rate.

Krugman's criticism hinges on a specific and arbitrary feature of Bitcoin that limits the supply of new coins, artificially pushing up the value of old ones, and leading to hoarding behavior rather than spending behavior. A currency that doesn't circulate is a currency that is that much more vulnerable to manipulation.