I have been an avid follower of the bitcoin saga from as early as 2014 when I stumbled upon Mythbuster’s Adam Savage’s Tested team trying to acquire a bitcoin and finding ways to spend it. At the time, bitcoin was still very niche and only a few vendors were willing to accept it, fast-foreward 8 years later, it is still not yet regarded as common legal tender, but more and more businesses are considering to include cryptocurrency as a form of payment.
On the 31st March 2022, Off-White annouced that they would accept cryptocurrency payments in their three flagship stores — London, Paris and Milan. The news sparked a little chatter amongst luxury enthusiast, who wondered if cryptocurrencies were going to be the future. At the time, the crypto market was going through what is known as the bull market where bitcoin was worth around €42.000 and ethereum at around €3.000. I suppose not many would have questioned why a brand like Off-White would get into receiving cryptocurrency payments, since the brand’s audience is predominantly Gen Z, who are assumed to be relatively crypto-literate.
One month after, Philipp Plein, who has been coined the Crypto King by showstudio.com, announced on various media outlets that he will establish a Web 3 concept store where he will not only sell NFTs, but also begin accepting cryptocurrency payments both online and in-stores. The article on Forbes described his plans on providing further education to his customers on how to set up a crypto-wallet and how to store NFTs, as well as how to make crypto tansactions. If you visit his online store, you have the option now to pay in fiat currency or in 24 different cryptocurrencies. The announcement of Philipp Plein’s approach to Crypto-payments opened up the discussion within the industry, where many questioned how this could work. — For many in the industry, cryptocurrencies are still not seen as real-world currency such as U.S. Dollar, Euro or UAE Dirhams. Rather, it is often confused as stocks and shares, or gold. I blame this on poor crypto literacy and misinformation; I recall being in a video-call with a representative at Dolce & Gabbana, and the question was raised, if they too were going to start accepting cryptocurrency payments — The answer at the time is, no.
At the time, the crypto market was still flourishing and no one was really expecting the huge free fall that started when Terraluna crashed. It was 10 days after Philipp Plein’s announcement when Bitcoin, which was used as Terraluna’s reserve, plunged below €28.000. Gucci and Balenciaga, both inside Kering’s portfolio, both considered as leading brands that are delving into the Web 3.0, were probably working with several 3rd parties to establish cryptocurrency payments. Which could explain their unfortunate timing when they announced that they too would be accepting cryptocurrencies, only three days after the Terraluna crash. Bitcoin on the day dropped by another €500, and have continued to drop since. Today, Bitcoin is now worth about €18.000 (-€24.000 since March 2022) and Ethereum is dancing around the 3-digit valuation mark.
Due to the volatility of cryptocurrencies, many question why luxury brands are still interested in accepting cryptocurrencies — is this because they had planned on benefitting from the bull market post-pandemic, but acted too late? Or is there something [we] are not seeing? This is also one of the most asked questions when I deliver a class on luxury companies engaging in Web 3.0 projects.
Having spoken to a number of people who are true believers of Web 3.0 and cryptocurrencies, I have concluded a number of opinions as to why luxury brands continue see this as a viable future payment option:
- Many made their wealth in the crypto bull market: Cryptocurrencies soared during the 2-year pandemic. Bitcoin reached one of its all time high in August 2020 before skyrocketting to 4x value by early April 2021. It was also around this time where many influencers on social media platforms, noteably Twitter, Youtube and TikTok were getting a lot of first time investors to get into shitcoins like Dogecoin (made popular by Elon Musk), Shiba Inu, Floki, Safemoon, etc. Shitcoins, are essentially nonesensical coins that have very low buy-in rates and have the ability to create high multiples should the coin rises in value. There have been many self-made millionaires who made their wealth gambling on shitcoins and have since “cashed out” with more stable cryptocurrencies like Bitcoin and Ethereum. Just as you would manage your investment portfolio, it is not always the best idea to cash out.
These customers are generally young and tech-savvy and exactly the types of consumers who are looking to spend their new found wealth on luxury goods. If luxury brands are not capitalizing on this market, then they are potentially going to lose out on a profitable demographic. - It’s a bear market — which hopefully will stabilise?: When you listen to De-Fi experts, many believe that the current bear market is the perfect storm, as it has forced speculators and gamblers out of the space and true believers to remain. The crypto market over the last 2 pandemic-ridden years have been extremely volatile, where values can go up as much as 30%+ and down the next second. Today, the shifts in valuation and devaluation of cypto is significantly less, and very much mimicking fiat currency. The hope is that eventually it will remain stable, as with fiat currency, so that both the customers and companies will not be too concern over huge losses on either side.
- Companies are preparing for Web 3.0 implementation: Companies like Gucci, Balenciaga and Philipp Plein have been first movers in a lot of Web 3.0 related projects. Particularly Gucci, which was the first to introduce NFTs to their customers in March 2021, when they collaborated with WANNA to generate digital sneakers. They continue to pave the way when they announced the puchase of a plot of land on Sandbox in February 2022, and other side projects with @10KTFshop owner Wagmi-san for limited-time mint of digital clothing designed by Alessandro Michele. By accepting cryptocurrency payments, it can help Gucci develop better competencies both by troubleshooting issues early on, and preparing their workforce for a Web 3.0 future. Today, you will discover that more and more luxury brands are constantly faced with clients who walk into the store asking if they would accept cryptocurrency payments, and unfortunately many have to turn these customers away because they simply do not have the infrastructure to do so. Moreover, many floor staff aren’t even crypto-literate. If we go back to 5 or 6 years ago, many luxury brands were not yet able to accept mobile payments like WeChat Pay, AliPay, Apply Pay and Samsung Pay. Today, every single luxury store would at least accept WeChat Pay and AliPay, because this is the preferred payment method of Chinese customers.
- Salary and Taxes: Golden State Warrior shooting guard Klay Thompson is one of the few professionals who have been asked to be paid in Bitcoin. Many tech entrepreneurs are also asking to be paid in cryptocurrencies these days — this is for various reasons. One, because they have different ways to better manage their finances and investment portfolios. Two, because cryptocurrencies as income can sometimes be tax-exempt. According to this website, 10 countries considers crypto earnings as tax exempt, these countries include Germany, Malaysia, Singapore and Portugal. Tax exemption are great incentives to have tax-free income which they can exchange for fiat currency when and if necessary — and of course, if they could make luxury purchases without going through an exchange, even better!
- Cryptocurrencies can sometimes be illiquid: Despite what we might like to think, some cryptocurrencies are not as liquid. If you come from a country where your currency is not considered valuable on an international scale, you will understand this concept. Imagine if you are from Brunei, a small but rich country in south east asia with its own currency (pegged to Singaporean Dollars), and you are travelling to Europe. If you forgot to buy Euros at your local bank back home, you will find it extremely difficult to find a money exchange that would accept Brunei dollars — because, realistically how many people will go to a money exchange in Paris asking for Brunei dollars? While the currency is strong and can stand on its own, it might not be in demand, and therefore not as “liquid”. Eventhough big crypto-exchanges like Coinbase, Binance and FTX have a good range of various currencies, you can sometimes find it difficult to cash them out depending on policy changes and whether not your local exchange delists it from their site — for example XRP on Coinbase. Everytime you want to cash out, it would mean you need to move cryptocurrencies from your wallet to an exchange, and from the exchange to your bank account, which incurs several transaction fees. If luxury brands could simplify the process — just as Philipp Plein accepts 24 different cryptocurrencies (image below), including Dogecoin, Polkadot and Solana. Customers could save on several transaction fees.
If we consider the experiment the Tested team performed in 2014, where it seemed almost impossible to spend their bitcoin around San Francisco, we have come quite far with individual brands publically announcing that they will accept cryptocurrency payments. I, for one have been attuned to this since 2017 when I read [somewhere] that there was a e-commerce platform for the super rich crypto-millionaires to use bitcoin to purchase luxury goods including cars, yachts and diamond pave watches: https://www.bitdials.eu.
My personal opinion is that, cryptocurrency payments are inevitable. They will become a part of our new reality. We do not expect everyone to adopt it, just as not everyone has adopted Wechat Pay, AliPay or Apple Pay. It will be a method of payment for those who prefer it, and if luxury brands do not catch up to this service, then they are probably going to lose out on an emerging demographic of crypto-savvy luxury consumers. Of course, this is not a race, but every single luxury brand must consider this as an option and start discussing it within the organisation.
