Why Luxury Needs to Embrace Cryptocurrency

    As more and more consumers begin to use cryptocurrency, luxury brands are split on how best to deal with this opportunity.
    As more and more consumers begin to use cryptocurrency, luxury brands are split on how best to deal with this opportunity. Photo: Shutterstock
    Adina-Laura AchimAuthor
      Published   in Jing Meta

    Several luxury brands have already jumped on the metaverse and crypto bandwagon, while others are more skeptical about recent technology developments in Web3. For instance, LVMH’s chairman Bernard Arnault said in an earnings call that the French luxury group is “not interested in selling €10 virtual shoes,” and instead, is “very much in the real world, selling real products,” as reported by The Fashion Law.

    LVMH’s stand on digital assets is in line with the views of several other luxury brands. Hermès, for example, is considering the metaverse only as a medium to “communicate” with its audience, but the luxury French house is not interested in selling digital assets inspired by its iconic bags. But while luxury companies are following the same playbook for their metaverse presence, they seem to have divergent views about the potential of cryptocurrency as a mainstream payment method.

    Just recently, Vogue Business announced that Gucci will accept 12 cryptocurrencies, including Bitcoin, Bitcoin Cash, Ethereum, Wrapped Bitcoin, Litecoin, Shiba Inu, and five stablecoins pegged to the US dollar at stores in New York, Los Angeles, Miami, Atlanta, and Las Vegas. And this is just the beginning, with the Kering- owned luxury label planning a wider rollout later this summer. Meanwhile, Off-White is already accepting payments with Bitcoin, Ethereum, Binance Coin, Ripple, and stablecoins Tether and USD Coin in its flagship stores in Paris, Milan, and London.

    LVMH-owned brand Hublot was a pioneer who made headlines in 2018 when it released a collector’s watch named “Big Bang Blockchain” that could be purchased only with BTC. Phillipp Plein and Franck Muller, as well as major airlines like Norwegian Air and LOT Polish Airlines, private jet charters, and even luxury hotels also accept crypto payments.

    What’s driving this trend? A PYMNTS and BitPay census-balanced survey of more than 2,330 U.S. consumers highlighted that 23 percent of consumers or about 59.6 million adults owned cryptocurrency in 2021, up from 16 percent in 2020. More interestingly, the research showed that millennials and bridge millennials are willing to change retailers that don’t accept payments in crypto.

    “At 32 percent, millennials are the most likely to say they are ‘very’ or ‘extremely’ likely to switch, followed by Generation Z consumers and bridge millennials, both at 27 percent,” the study stated.

    Meanwhile, more than a quarter of high-18 percent of middle-income consumers declared they are ”very” or “extremely” likely to change merchants if they don’t offer crypto payments.

    A different survey from U.S. cryptocurrency exchange Gemini that was conducted between November 2021 and February 2022, showed that nearly half of all cryptocurrency owners in the United States, Latin America, and Asia Pacific acquired crypto for the first time in 2021. Clearly, inflation and the global economic downturn will boost the number of crypto investors further.

    So should luxury brands finally accept cryptocurrency payments? The answer is yes. In the same way luxury embraced mainstream Chinese mobile payment methods to target overseas consumers, the industry needs to respond to market demands in the West and embrace cryptocurrencies.

    High volatility index#

    Of course, the move will not be without its difficulties.

    Jeremy Siegel, Wharton School finance professor, told CNBC Squawk Box “digital coins are the new gold for the Millennials,” and that Millennial investors see Bitcoin as an inflation hedge.

    While young investors might view cryptocurrency in this way, the reality is that digital assets experience high volatility and some level of inflation (more Bitcoin continues to be added to the block every ten minutes). Accordingly, luxury brands have questioned the returns on their investments.

    In this context, labels are right to be concerned about pricing luxury products in Bitcoin, considering that the value of the digital asset fluctuates by 5 percent or even 10 percent on a single day. In 2021, Bitcoin’s value even dropped 30 percent to 30k (200k RMB). Smaller cryptos can have even larger price fluctuations, according to The Motley Fool. These can have a significant impact on the profitability of a business.

    Unfortunately, there is no short-term solution to this problem. Scott Nover, Emerging Tech Reporter at Quartz, argued that cryptos’ massive value jumps “appear to be driven by a heady mix of speculation, network effects, and hype.” Inevitably, luxury groups will have to get used to high volatility if they want a slice of the crypto pie.

    Building the infrastructure and partnering with reliable third-party vendors#

    Finding a reliable third-party vendor that can become the cryptocurrency payment gateway for a luxury label is another task that needs special consideration. Not only does the process come with service and transaction fees, but the luxury brand also has to open itself up to the risk of fraud. Companies can’t know for certain whether the third-party vendor has a secure mechanism in place that protects its network against hackers.

    For example, Off-White will use payments provider Lunu to process in-store payments in crypto. Luxury firms need to find a reliable and trustworthy partner before they accept payments in cryptocurrencies.

    Too many options#

    In March 2022, there were 18,465 cryptocurrencies in circulation. And by November 2021, 1,085 cryptocurrencies have already failed.

    With so many options (and failures) on the market, it is understandable that confusion reigns supreme among consumers and businesses. Evidently, the excessive number of cryptocurrencies weakens their legitimacy, as consumers might feel that some of these digital assets are fraudulent or unstable.

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