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Inflation Soars in the Bitcoin Consumer Price Index

In December, using bitcoin to pay for a cold Corona at New York City's Old Man Hustle bar was a smart move. With the digital currency up 64-fold for the year, patrons got lots of bitcoin bang for their beer. Bitcoin-priced goods were experiencing "massive deflation," Bloomberg Businessweek's Peter Coy wrote , as the price of real things in terms of bitcoin plummeted.

Coy measured that by creating a Bitcoin Consumer Price Index that was the exact equivalent of the U.S. Bureau of Labor Statistics' Consumer Price Index but measured the prices of goods and services in terms of bitcoins instead of dollars. Here's what that looked like for 2013:

And now? The price of a bitcoin is around $442 on CoinDesk, down more than 40 percent from the start of 2014. Bitcoin brew-buying isn't nearly as attractive, as massive inflation takes root with items priced in the digital currency. For example, in December one bitcoin bought about 128 Coronas at the Lower East Side bar, not counting tax. It would buy about 74 beers today. The bar has been letting people pay with bitcoin since November and gets about six to 12 transactions a week, says principal owner and crypto-currency disciple Mike Jarmuz.

Prices as measured by the Consumer Price Index, meanwhile, rose 0.3 percent in April, after gaining 0.2 percent in March.

The Bitcoin Consumer Price Index for 2014 would have those who like to pay for their beer in bitcoin crying in their suds -- or, at the very least, using paper dollars -- as bitcoin inflation soars. The number of bitcoin transactions falls when bitcoin prices rise, says Jarmuz of Old Man Hustle.

The bar owner counts himself among those who aren't about to part with their bitcoin at current prices. Jarmuz, who bought bitcoin when it was at $5, is stockpiling the currency. Whenever a patron uses it, he pays for their tab out of his pocket with dollars and takes the bitcoin. He expects the virtual currency to hit $10,000 easily, perhaps within the next 18 to 24 months. That's 1,667 Coronas.

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