BitCoin Consumption Increases During Times of Currency Deflation
Economist usually say that during times of inflation consumers are encouraged to spend more and during times of deflation they will save more. During times of inflation, the value of the currency is going down. Consumers are thought to buy more because every day the currency buys them less.
The opposite occurs during deflation. The value of the currency is increasing and can buy more stuff. Consumers will hold off from making a purchase because they feel they will get more if they wait. Federal Reserve Chairman Ben Bernake says deflation should be avoided in order to grow the economy.
The data we have at JJGames.com on Bitcoin transactions shows the opposite behavior for the Bitcoin market. During deflationary periods Bitcoin consumers spend more money.
BitCoin Prices vs BitCoin Sales on JJGames?
The chart below shows the closing BitCoin price per day on the left axis and the daily BitCoin denominated sales on JJGames on the right axis.
Click for larger image
Summary of Results
|Period||BitCoin Avg. Daily Price Increase||JJGames.com BitCoin Avg. Daily Sales|
|Deflation 1 (2011-04-15 to 2011-06-09)||51.04%||$79.82|
|Deflation 2 (2013-01-15 to 2013-04-09)||17.75%||$22.60|
For this study we compared the published BitCoin prices from February 7th, 2011 to now with the BitCoin sales on JJGames.com during this same time period. During this 879 day period BitCoin sales on JJGames averaged $17.24 per day.
During this time period BitCoin has had two major deflationary periods where the value of the currency increased substantially. One from April 15th, 2011 to June 9th, 2011 and another from January 15th, 2013 to April 9th, 2013.
During the first deflationary period (2011-04-15 to 2011-06-09) prices increased 2,858% in 56 days. Going from a value of $1 USD to $29.58 USD. During these same 56 days BitCoin sales averaged $79.82 per day on JJGames. A 363% increase from the average.
In the second deflationary period (2013-01-15 to 2013-04-09) BitCoin prices increased 1,509% in 85 days. Increasing from $13.34 to $214.67. During the same time the average daily sales denominated in BitCoins was $22.60. A 31% increase from the average.
Deflation Might Not Discourage Consumption As Much As Believed
BitCoin owners are more likely to make a purchase when the market is deflationary (increasing in price) than when the market is inflationary. I won't speculate on the reason for the difference between reality and economic theory. Why do you think BitCoin consumers behave different than economic models would predict?
The complete dataset used for this study is available on Google Docs. If you cite the data, please be kind and cite this article as well. Thank you.
JJGames.com has accepted BitCoin as a payment method since early 2011.