Will luxury brands start to accept crypto? | BoF Professional, News and Insights

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Last week, Philipp Plein announced that his luxury brand based in Lugano, Switzerland, would start accepting cryptocurrencies, including Bitcoin and Ethereum, both online and in stores, becoming the first major brand of fashion to do it.

Plein dubbed himself a king of crypto as he touted the initiative with a series of animations on Instagram. I believe in the future of crypto, Plein said. We are writing history.

In some ways, the booming brand movement seems like an inevitable step for the fashion industry. Despite concerns, including increased financial surveillance and a crackdown on crypto mining in China, the cryptocurrency’s notoriety and popularity as a vehicle for investment and speculation continued to grow. Bitcoin’s market cap was $ 870 billion on Monday, up 59% this year, while Ethereum, the second largest cryptocurrency, was worth $ 369 billion, up 328%. By allowing customers to pay with cryptocurrency, Plein joins companies as diverse as Home Depot, Starbucks, WeWork, and AT&T.

There is likely some overlap between the highly online cryptocurrency community and the hype fans of fashion figures like Off-White and Louis Vuitton Menswear Director Virgil Abloh or Dior Hommes designer Kim. Jones, who collaborated on limited edition capsules with the likes of Kaws and Shawn Stssy. And fashion brands have already dipped their toes into the cryptocurrency world in recent months, as brands such as Louis Vuitton, Burberry, and Rimowa have all released their first unique NFT digital assets which in most cases have been released. case, can only be purchased with Ethereum.

Still, don’t expect the biggest luxury players to jump on the crypto bandwagon just yet.

Large luxury groups, including LVMH and Richemont, are monitoring the cryptocurrency space and have considered whether or not to accept the tokens for payment, the executives of both companies told BoF. They asked not to be identified as the discussions were private. But companies continue to not adopt the technology due to factors such as volatility in coin valuations, transaction fees when converting back to traditional currencies, environmental concerns about the computing power required to mint and transfer tokens. and mistrust of accepting the untraceable. Bitcoin payments.

Any large luxury group would have explored this in quite significant ways, said Timothy Iwata Durie, innovation director at Cartier, owned by Richemont, and a board member of the Aura Blockchain Consortium, a joint initiative of LVMH, Prada. and Richemont.

Cartier, for example, started looking into the crypto space over three years ago. The landscape has changed a lot since then and there are now solutions on the market that would alleviate some of the concerns. [But] the infrastructure is not yet mature, said Iwata Durie.

Spokesmen for LVMH, Richemont and Kering declined to comment on the group’s deliberations regarding cryptocurrency payments.

The unique digital tokens of cryptocurrencies that can be traded like cash have been promoted as a way to secure and speed up online transactions, as well as to separate commerce from the control of governments and central banks. Their limited quantity has led them to be viewed by supporters as a hedge against inflation and to become a prized target of speculation by retail investors and institutions.

But the demand for actually buying things with tokens remains limited.

Very few people who hold crypto want to pay with it. They approach it more as an asset for investment or speculation, said Iwata Durie.

As the Aura Luxury Groups initiative works to adapt the core technology of cryptocurrencies, the blockchain, to fuel uses such as verifying product authenticity and tracing commodities to ensure sustainable sourcing. , the consortium is not currently working on the use of cryptocurrency for payments.

As export-oriented businesses whose cost base is primarily paid in euros, luxury brands have become experts in mitigating their exposure to changes in the value of their home currency against the dollar, yen, yuan and others. Brands buy hedging contracts to help compensate for exchange rate changes to generate consistent returns for investors, a task that would be more difficult if frequent fluctuations in the value of cryptocurrencies were allowed on the balance sheets of companies.

Widely accepting cryptocurrency would require infrastructure to adjust prices to keep up with the rapidly changing value of digital tokens. Brands would then have to decide between keeping the volatile assets or paying transaction fees to convert them to traditional currency.

When it comes to traceability, cash payments are capped or must be reported above a certain amount in many jurisdictions. Businesses are wondering how to fulfill their obligation to keep track of customer identities and payment information when selling big ticket items using hard-to-trace cryptocurrencies like Bitcoin, three of the luxury goods executives said. .

The European law enforcement agency Europol has reported how high-value goods such as luxury watches and jewelry risk being used to launder money and transport value across borders to fund transactions. criminal operations. Brands have a motivation to prevent their products from potentially being linked to such companies, so they have been reluctant to accept bitcoin, which is seen to be favored by hackers and kidnappers due to its anonymous nature.

Sustainability is another key area of ​​concern, as generating the computational power needed to run blockchain networks that support digital tokens is an energy-intensive business. The Bitcoin network’s annual carbon footprint is roughly equal to that of the entire country of Switzerland, according to an analysis by researchers at the Judge Business School at Cambridges University. Tesla, which was previously one of the most prominent companies to accept Bitcoin as a payment method, said in May it would stop doing so until the Bitcoins network is powered by at least 50% of renewable energy.

Fashion designers are already struggling to reduce the ecological impact of their businesses. Many have publicly signed targets to reduce their carbon footprint, and they are likely concerned that integrating cryptocurrency into their business models is seen as a step in the wrong direction.

Supporters of cryptocurrency and other blockchain-based technologies claim that sustainability issues are taken into account. Ethereums founder Vitalik Buterin says that a series of upgrades and changes to his network currently underway (known as Ethereum 2.0) will significantly reduce the carbon footprint of his transactions.

A fast-growing ecosystem of fintech startups have struggled to address a wide range of challenges preventing more widespread adoption of crypto payments, said Ian Rogers, former chief digital officer of LVMH and director of experience. at the beginning of the French cryptocurrency. -up Ledger.

There are many technical solutions on the market, he said. If the demand were there, LVMH could start accepting crypto as early as tomorrow.

Still, most crypto holders are more interested in trading the tokens or holding them as an investment rather than as payments to buy physical items, Rogers said. And for those who want to use crypto to pay, the payment giants’ new services take the pressure off the brands themselves providing the service.

Visa now offers a cryptocurrency debit card, while Paypal, which is accepted by 29 million merchants, announced in March that it would begin allowing users to fund their accounts with cryptocurrency.

NFTs (non-fungible tokens), however, are a space that could see luxury brands’ interest in cryptocurrency continue to intensify. NFTs use the Ethereums platform to link unique digital assets to self-executing smart contracts. As young consumers increasingly move between the physical and digital realms, producing coveted online items like artwork, animated clothing, and video clips is becoming a new way for brands to leverage creativity and influence of the brand.

Digital products such as a video, sketch, or animation may be sold separately or together with physical products. As the infrastructure for collecting and displaying NFTs grows, brands could exploit new opportunities to create value for customers by providing exclusive creative content on the origin of physical products or by making the product itself exist in an animated form to wear online. Brands would benefit from tracing the journey of digital tokens and even programming them to earn a commission on secondary market sales.

The NFT marketplace, which primarily relies on the Ethereums system, has the ability to be a tool for the brand in its storytelling, Iwata Durie said.

For now, fashion brands have partnered with specialist exchanges to assist in extracting, distributing and collecting payments for their NFTs. If the NFT craze persists, the luxury industry may need to internalize these functions and tailor them to their needs, which would bring them one step closer to integrating cryptocurrency into their models.

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