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Will Luxury Brands Start Accepting Crypto?

Philipp Plein is going for it, and some of the industry’s biggest brands have considered accepting Bitcoin, Ethereum and other blockchain-based payments. But the risks might still outweigh the benefits for more established players.
Promotional images and screen shots from Philipp Plein's cryptocurrency announcement. Business of Fashion collage.
Philipp Plein announced he would start accepting cryptocurrency with an animated promotional video on Instagram. BoF collage.

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

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

In some ways, the blinged-out brand’s move feels like an inevitable step for the fashion industry. Despite concerns including increased financial oversight and a crackdown on crypto mining in China, awareness of cryptocurrency and its popularity as a vehicle for investment and speculation have continued to expand. Bitcoin’s market capitalisation was $870 billion Monday, up 59 percent this year, while Ethereum, the second-biggest cryptocurrency, was worth $369 billion, up 328 percent. By letting customers pay with cryptocurrency, Plein joins businesses as diverse as Home Depot, Starbucks, WeWork and AT&T.

There’s likely quite a bit of overlap between cryptocurrency’s highly online community and the hypebeast fans of fashion figures like Off-White and Louis Vuitton menswear director Virgil Abloh or Dior Homme’s designer Kim Jones, who has collaborated on limited-edition capsules with the likes of Kaws and Shawn Stüssy. And fashion brands have already been dipping their toes into the cryptocurrency universe in recent months as brands including Louis Vuitton, Burberry and Rimowa all released their first NFTs — unique digital assets that in most cases can only be purchased with Ethereum.

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

Major luxury groups including LVMH and Richemont are monitoring the cryptocurrency space and have considered whether to accept the tokens for payment, executives at both companies told BoF. They asked not to be identified as the discussions were private. But the companies continue to hold off from adopting the technology due to factors including the volatility of the coins’ valuations, transaction fees when converting back to traditional currencies, environmental concerns regarding the computing power needed to mint and transfer the tokens and a wariness about accepting untraceable Bitcoin payments.

“Any large luxury group would have explored this in a pretty meaningful way,” said Timothy Iwata Durie, innovation director at Richemont-owned Cartier and board member at the Aura Blockchain Consortium, a joint initiative by LVMH, Prada and Richemont.

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

Spokespeople for LVMH, Richemont and Kering declined to comment on the groups’ deliberations regarding cryptocurrency payments.

Cryptocurrencies — unique digital tokens that can be exchanged like money — have been promoted as a means of securing and accelerating online transactions as well as separating commerce from the control of governments and central banks. Their limited quantity has caused them to be seen by proponents as a hedge for inflation and become a prized target for speculation by retail investors and institutions alike.

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

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

While the luxury groups’ Aura initiative is working on adapting cryptocurrencies’ foundational technology, the blockchain, to power uses like verifying the authenticity of products and tracing raw materials to ensure sustainable sourcing, the consortium is not currently working on using cryptocurrency for payments.

As export-focused businesses whose cost base is mostly paid out in euro, luxury brands have become experts in mitigating their exposure to shifts in the value of their native currency relative to the dollar, yen, yuan and others. Brands purchase hedging contracts to help offset exchange rate changes in order to generate consistent returns for investors — a task that would be more challenging if the frequent swings in cryptocurrencies’ value were allowed onto the companies’ balance sheets.

Accepting cryptocurrency broadly would require an infrastructure for adjusting prices to keep up with the fast-changing value of digital tokens. Brands would have to then decide between holding onto 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. Companies are concerned about how to fulfil their obligation to keep track of customers’ identities and payment information when selling high-ticket items using hard-to-trace cryptocurrencies like Bitcoin, three of the luxury executives said.

European enforcement agency Europol has flagged how high-value goods like watches and luxury jewellery risk being used to launder money and transport value across borders to fund criminal operations. Brands have a motivation to avoid their products being potentially linked to such endeavours, so they’ve been wary of accepting bitcoin, which is perceived as being favoured by hackers and kidnappers due to its anonymous nature.

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

Fashion makers are already struggling to reduce the ecological impact of their businesses. Many have publicly signed onto targets for reducing their carbon footprints, and they are likely worried that accepting cryptocurrency could be seen as a step in the wrong direction.

Proponents of cryptocurrency and other blockchain-based technologies say that sustainability concerns are being addressed. Ethereum’s founder Vitalik Buterin claims that a series of upgrades and changes to its network currently underway (called “Ethereum 2.0″) will dramatically reduce the carbon footprint of its transactions.

A fast-growing ecosystem of financial tech start-ups has been working to tackle a wide range of challenges holding up more widespread adoption of crypto payments, said Ian Rogers, the former chief digital officer of LVMH and chief experience officer at the French cryptocurrency start-up Ledger.

“There are plenty of technical solutions on the market,” he said. “If the demand was there, LVMH could start accepting crypto 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 objects, Rogers said. And for the ones who do want to use crypto to pay, new services from payment giants are taking the pressure off of brands providing the service themselves.

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

NFTs (non-fungible tokens) are one space that could see luxury brands’ interest in cryptocurrency continue to heat up, however. NFTs use Ethereum’s platform to link unique digital assets to self-executing “smart contracts”. As young consumers increasingly move between the physical and digital realms, producing covetable objects online like artworks, animated garments and video clips is becoming a new way for brands to leverage creativity and brand clout.

Digital products like a video, sketch or animation could be sold separately or in concert with physical products. As the infrastructure for collecting and displaying NFTs develops, brands could tap new opportunities to create value for clients by providing exclusive creative content about 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 digital tokens’ journey and could even program them to collect a commission on sales in the secondary market.

The NFT market, which mostly depends on Ethereum’s system, “has the capacity to be a tool for the brand in their storytelling,” Iwata Durie said.

For now, fashion brands have been partnering with specialised exchanges for assistance with mining, distributing, and collecting payment for their NFTs. If the NFT craze sticks, luxury companies may need to internalise those functions and adapt them to their needs — which would bring them one step closer to making cryptocurrency part of their business.

Digital Fashion & Avatars Decoded

The Opportunity in Digital Fashion and Avatars Report — BoF Insights

BoF Insights’ guide to digital assets in fashion, which examines the rise of the metaverse and underlying technological, social and consumer shifts, plus includes a playbook for how to seize the opportunity. To explore the full report click here.

The Opportunity in Digital Fashion and Avatars is the in-depth report published by BoF Insights, a new data and analysis think tank from The Business of Fashion arming business leaders with proprietary and data-driven research to navigate the fast-changing global fashion industry.

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