After a number of false starts, cryptocurrencies — led by Bitcoin — could be here to stay. It’s uncharted territory for the luxury fashion sector, but momentum might build fast.
Cryptocurrencies can act as social tokens, building community and loyalty. The big leap is to take this concept from tech circles to more mainstream consumer audiences, gaining acceptance among brands and influencers.
Bitcoin, the first and most well-known cryptocurrency, emerged in 2008 during the financial crisis as a decentralised digital currency free from governmental oversight. Progress was slow. “Crypto has really been tainted with this notion that it’s dirty money. Up until 2017, it was like the Wild West, and up to 97 per cent of stuff out there was a scam,” says Jasper Tay, co-founder and chief operating officer of Plutus, a decentralised fintech firm.
But cryptocurrencies are now returning to the spotlight, thanks to their recent adoption by high-profile entrepreneurs like Elon Musk. Regulation has improved the image of Bitcoin. “It’s really cleaning up,” says Tay. A year ago, Bitcoin’s market value was $178 billion. Last week, it passed $1 trillion for the first time as the leading cryptocurrency traded at new record highs, per the CoinDesk Bitcoin Price Index. Part of Bitcoin’s resurgence also has to do with the rise of online gaming and an increasing interest in non-fungible tokens (NFTs), says Martha Bennett, Forrester’s vice president and principal analyst, who has over 30 years of experience covering emerging technologies.
This year could see rapid growth for NFTs, a new type of decentralised digital asset published on the Ethereum blockchain and certifiably singular, like a unique work of art. While selling digital assets — such as avatar skins — isn’t new, this is a new method of preventing the replication of assets by other users, says Bennett. Fashion’s desire for newness and exclusive pieces could allow NFT creators to prosper: in July 2020, total NFT sales surpassed $100 million, according to Nonfungible.com, which monitors the crypto collectable market.
Major brands are already creating and trading NFTs: Nike has used them to create digital shoes linked to real-world shoes; Louis Vuitton uses NFTs to track the provenance of luxury goods. This trend is likely to continue in 2021 as fashion embraces the metaverse — a virtual world where people interact with each other through avatars, says Bennett. “Overall, there is a trend towards representing physical assets in a digital form,” she explains. “I would say to a luxury house, be aware of what’s going on because if you don’t become directly involved, someone else might. ”
Rewarding fan communities
A very small proportion of luxury consumers currently use cryptocurrencies — one per cent, according to data from Forrester. “In the context of the luxury industry, it isn’t going to become a mainstream payment instrument, but that’s not to say that brands should entirely ignore it,” says Forrester’s Bennett.
Luxury watchmakers such as Franck Muller and Hublot have started selling timepieces exclusively for purchase via Bitcoin. “The launch was a success; interest was high, and we pre-sold 210 watches,” says Ricardo Guadalupe, chief executive of Hublot. “We believe that virtual currencies are the future and will [accept] payment in Bitcoin and other cryptocurrencies on our e-boutique in 2021 or 2022.”
Hublot’s limited-edition watch is available for purchase exclusively with Bitcoin.
Cryptocurrencies can be used by brands as a way to connect with — and reward — their fan communities. Founded in 2018, Lolli has created a platform that allows anyone to earn Bitcoin through shopping. While most reward programmes offer loyalty points or cashback, Lolli sends Bitcoin directly to customers’ wallets whenever they shop online with Lolli’s partners. Lolli currently works with over 1,000 retailers, including Nike, Sephora, Ulta, Bloomingdale’s, Saks and last week, signed sneaker marketplace StockX.
The average reward is about 7.5 per cent of the purchase price, paid back in Bitcoin. “Our philosophy is that people should not necessarily be spending Bitcoin. Right now is the phase of the market where everyone should be amassing it, earning it, turning into a store of value, because it’s only going to keep increasing,” says Matt Senter, co-founder and chief technology officer of Lolli.
Cryptocurrencies can be compared to air miles in that they can only be used within the infrastructure of specific companies, but that’s not necessarily a bad thing, says Tay of Plutus, which partnered with Nike in 2020. Consumers who shopped at Nike via Plutus would receive back 10 per cent of the value of the sneakers bought in Bitcoin — a reward for customer loyalty. Plutus currently has 25,000 users, most of whom are under 35. “It’s the future because millennials and Gen Z have a different view on life, whether it’s their views on sustainability or governance. For this demographic, it’s really about libertarianism where you’re in control of your destiny,” says Tay.
There are other benefits for brands. Accepting Bitcoin and other cryptocurrency attracts new customers and boosts sales. Cryptocurrency users have an average order value (AOV) of $450, compared to an average AOV of about $200 for non-cryptocurrency users, according to Forrester. Brands also incur lower fees on crypto payments than on credit card payments.
Brands have an opportunity to launch exclusive drops in the metaverse, says Michelle Phan, a digital pioneer credited with playing a pivotal role in decentralising the beauty industry. “Imagine one day Nike does a cool limited-edition NFT drop with LeBron James, and there are 100 of these sneakers that exist on [the video game] Population: One. It can be your skin in the game, but you can also get it in real life, and they’re accessible only via their own social tokens,” muses Phan, who is an investor in Lolli.
Rally is helping its partners to launch their own currencies. It currently has 65 creators on the platform and over 10,000 fans holding their coins. “Sneaker marketplaces, any place where there are e-commerce drops, limited inventory or short windows to purchase… I think that’s where creator coins have a solid use case. Imagine only being able to purchase a must-have product via the brand’s coin or getting access only if you hold a certain amount of those coins,” says Mahesh Vellanki, co-founder and head of growth for Rally.
Brand loyalty play
Many creators feel burned and burned out by big tech social platforms, which rake in huge profits and often give creators the raw end of the deal. Brands and creators might prefer to use their own tokens to build their own economies and interact with fans on their terms, Rally’s Vellanki suggests.
Expect a period of experimentation, with influencers and brands tapping crypto to engage their fan bases with token-permissioned chat and video functionality. American musician JVCKJ, who has produced runway music for Junya Watanabe, released his new album and debuted his streetwear brand via cryptocurrency last week. Fans who buy into his $PSTL coin will be able to pre-order clothes and access new music, videos and live chats on platforms like Discord and Twitch. More than 30,000 purchases were made in the first 24 hours in anticipation of future releases, according to JVCKJ.
JVCKJ released his new album and streetwear brand Pastel via cryptocurrency.
Launching his own currency is a loyalty play that creates value for his fans, who feel like they’re investing and have some form of ownership in his brand, says JVCKJ. Users who buy into his $PSTL coin, named after his album Pastel, receive early access to his new releases in fashion and music. They can also “make money off this” if the coin’s value increases over time, says JVCKJ. Going forward, the entrepreneur plans to develop “collectable” NFTs that his fans can purchase. “I’m trying to find innovative ways to create my own economy,” he says.
Kiev-based fashion designer Anna Karenina believes that everyone who attends her fashion show could be an “investor”. She issues crypto tokens, also known as initial coin offerings (ICOs), to her audience before a show, enabling viewers to crowdfund a design or collection.
Opportunities and risks ahead
Risks abound. The volatility of cryptocurrency means that a coin worth $50,000 today could be worth $30,000 or $20,000 in a matter of weeks, says Vikas Agarwal, partner and a principal in financial crime technology at PwC. Frauds, scams and other criminal activities are rampant, while it’s not easy to store cryptocurrencies because of the risk of cyberattacks and theft, he adds.
But mainstream awareness and a willingness to try the technology are on the rise. A significant 81 per cent of people surveyed by Plutus would support widespread crypto adoption. A sizable portion of participants prefer earning crypto as a loyalty reward rather than buying or mining it.
Is it ethically responsible for influencers and brands to promote Bitcoin? Agarwal has no issues. “I definitely think it’s responsible for companies to accept Bitcoin payment or develop their own currency. It’s a great strategy in terms of how they can pick up consumers and also take advantage of the disposable income that exists,” he says. “This is the time, especially in the fiat currencies, to be looking at what you can offer your customers. It’s like introducing a new asset class.”
Bennett of Forrester urges caution: “The key to bear in mind is that it’s a speculative asset, so you have to be prepared to potentially lose your money if it doesn’t work out.” The environmental impact of mining cryptocurrency could also be a significant obstacle in a long-term rise, as large amounts of computing power are required, she says.
Phan adds: “There’s so much misinformation, and I try my best as an influencer to share information that can help clarify any questions that I also had when I first went into the space. But at the end of the day, I’m not a financial advisor, and I tell people to invest at their own risk.”
For a younger generation, the brave new world of cryptocurrency is an exciting prospect. But not every consumer will feel the same thrill. “Understand your current customer base, as well as who it is that you wish to attract,” says Bennett. “As a brand, if you feel that your customer base is on the whole conservative and risk-averse, then you might scare them if you get into cryptocurrency.”
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