Can crypto save the Chinese diamond market?

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Key points to remember:

Many young and socially conscious consumers have expressed growing concern about blood diamonds.

In 2018, the World Federation of Diamond Exchanges ranked Shanghai as one of the world’s leading diamond hubs.

A study by research and consulting firm Forrester Consulting found that up to 40% of customers who pay with crypto are new brand customers.

Asset-backed cryptocurrencies are on the rise. But until recently, diamonds have not caught the attention of investors as they tend to lose their resale value. And the arrival of sustainable, lab-grown diamonds has further hampered the diamond trade. In addition, young, socially conscious consumers have expressed growing concern about blood diamonds.

Ethical consumerism has started to become a trend even in China. Therefore, diamond sellers know that there is a strong need to develop strategies that re-engage customers for better retention.

So far, offering decentralized payment options has proven to be a great customer experience strategy. Not only do cryptocurrencies attract younger demographics who are more comfortable participating in the digital economy, but they also create a more transparent, secure and fair diamond market. Instead of secretly enriching merchants, retailers, third-party sellers or financial intermediaries, cryptocurrencies offer consumers direct and transparent transactions.

China is a complex market where the diamond trade is strong but which has its own challenges. For example, synthetic diamonds and fake gemstones are very common. However, online platforms like JD.com and retailers like Chow Tai Fook have attempted to crack down on fake diamonds.

For example, JD.com has partnered with independent technology company Everledger and the Gemological Institute of America (GIA) to help increase confidence and transparency in the provenance of diamonds, according to a press release from JD.com . And Chow Tai Fook has teamed up with Everledger to sell their T MARK line, in which diamonds are engraved with traceable codes that offer information about the gemstones.

Over the past decade, China has maintained its impressive position as the second largest diamond consumer market. And in 2018, the World Federation of Diamond Stock Exchanges (WFDB) ranked Shanghai as one of the world’s leading diamond hubs.

Prior to the COVID-19 pandemic, the import of net polished diamonds through the Shanghai Diamond Exchange (SDE) experienced a significant jump, registering an annual increase of 27% from 2002 to 2018, according to diamonds.net. A favorable tax policy adopted by SDE in 2006 has also boosted the diamond trade. And more recently, the trend of love-related gifts and the self-shopping trend promoted by Chinese millennials and Gen Z have further increased sales.

Considering the financial potential of young Chinese consumers and their amazing spending habits, it is hardly surprising that diamond sellers have turned to cryptocurrencies.

For its live auction, Diamonds: The Dazzling, Sothebys announced that it will accept Ether, Bitcoin or USD Coin payments facilitated through Coinbase Commerce. But this case is not the first time that Sothebys has offered diamonds for public purchase with cryptocurrency.

Last July, a 101-carat diamond broke records when it became the most expensive piece of jewelry ever purchased with cryptocurrency, according to Sothebys and CNN. The remarkable diamond, named “The Key 10138”, was purchased by an anonymous private collector for the equivalent of $ 12.3 million.

Key 10138, which weighs over 100 carats, is the world’s first significant diamond to be auctioned with cryptocurrency. Photo: Sotheby’s

According to the auction house’s press release, Sotheby’s vice president for jewelry in Asia, Wenhao Yu, said the sale had attracted “new clients far beyond the traditional pool of collectors,” adding that cryptocurrency purchases are appealing to a “digitally savvy generation.”

A study by research and consulting firm Forrester Consulting titled The Total Economic Impact ™ Of Accepting Bitcoin Using BitPay ”found that up to 40% of customers who pay with crypto are new customers. In addition, the amount spent by Bitcoin users is double that of credit card users. And finally, there is no risk of credit card fraud or identity theft with Bitcoin.

Effectively, blockchain-based cryptocurrencies offer an additional level of security that is not available with traditional payment methods. Therefore, buying expensive jewelry and gems with crypto offers consumers greater protection. Additionally, cryptocurrencies offer users a level of privacy that cash and credit card transactions cannot achieve. Additionally, anonymous transactions are requested in countries like China, where the party frowns on luxury indulgences and promotes legislation to tackle wealth inequality.

Soon, due to spendthrift Chinese millennials and Gen Z, the diamond trade will become more integrated into the global digital economy, making crypto payments like bitcoin and Ethereum the norm rather than scarcities.

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