After a number of false starts, cryptocurrencies — headed by Bitcoin — could be here to stay. It is uncharted territory for the luxury fashion industry, but momentum might grow quickly.
Cryptocurrencies can act as social tokens, building community and loyalty. The big leap is to take this concept from tech circles into more mainstream consumer audiences, gaining acceptance among brands and influencers.
Bitcoin, the first and most well-known cryptocurrency, emerged in 2008 during the fiscal crisis as a decentralised digital currency free from governmental oversight. Progress was slow. “Crypto has been tainted with this notion that it is dirty money. Up until 2017, it was like the Wild Westup 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 currently returning to the spotlight, as a result of their recent adoption by high-profile entrepreneurs like Elon Musk. Legislation has improved the image of Bitcoin. “It’s actually 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 fresh record highs, per the CoinDesk Bitcoin Price Index. Section of Bitcoin’s resurgence also has to do with the development of online gaming and a growing interest in non-fungible tokens (NFTs), says Martha Bennett, Forrester’s vice president and chief 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 brand new way 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, based on Nonfungible.com, which tracks the crypto collectable marketplace.
Important brands are already trading and creating 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 very 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 an electronic form,” she explains. “I would say to a luxury house, know what is happening because if you don’t become directly involved, somebody else might.”
Rewarding fan communities
A tiny proportion of luxury consumers currently use cryptocurrencies — one percent, according to data from Forrester. “In the context of the luxury business, it isn’t going to be a mainstream payment instrument, but that’s not to say that brands should entirely ignore it,” says Forrester’s Bennett.
Luxury watchmakers like Franck Muller and Hublot have begun 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 think that virtual currencies will be the future and will [accept] payment in Bitcoin and other cryptocurrencies on our e-boutique in 2021 or 2022.”
Cryptocurrencies may be used by brands as a way to connect with — and benefit — their enthusiast communities. Founded in 2018, Lolli has created a platform which enables anybody to earn Bitcoin through shopping. While most reward programmes offer loyalty points or cashback, Lolli sends Bitcoin directly to clients’ wallets whenever they shop online with Lolli’s partners. Lolli currently works with over 1,000 retailers, such as Nike, Sephora, Ulta, Bloomingdale’s, Saks and last week, signed sneaker marketplace StockX.
The average reward is about 7.5 percent of the purchase price, paid back in Bitcoin. “Our philosophy is that people shouldn’t always be spending Bitcoin. Right now is the phase of the market where everyone should be amassing it, making it, turning into a store of value, as 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 businesses, 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 get back 10 percent of the value of the sneakers bought in Bitcoin — a reward for customer loyalty. Plutus now has 25,000 users, most of whom are under 35. “It is the future because millennials and Gen Z have a different perspective on life, whether it’s their views on governance or sustainability. For this demographic, it’s really about libertarianism where you’re in control of your fate,” says Tay.
There are other benefits for brands. Holding 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 approximately $200 for non-cryptocurrency users, according to Forrester. Brands also incur lower fees on crypto payments compared to credit card payments.
Brands have an opportunity to launch exclusive drops in the metaverse, says Michelle Phan, an electronic pioneer credited with playing a pivotal role in decentralising the beauty industry. “Imagine one day Nike does a trendy limited-edition NFT drop with LeBron James, and there are 100 of those sneakers which exist on [the video game] Population: One. It can become 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’s an investor in Lolli.
Rally is assisting its partners to start their own currencies. It currently has 65 founders on the platform and more than 10,000 fans holding their coins. “Sneaker marketplaces, any place where you can find e-commerce drops, limited inventory or brief windows to purchase… I think that’s where creator coins have a solid use case. Imagine only being able to buy a must-have product through the brand’s coin or obtaining access only if you hold a certain amount of these coins,” says Mahesh Vellanki, co-founder and head of expansion for Rally.
Brand loyalty play
Many creators feel burnt and burnt out by large technology social platforms, which rake in enormous profits and often give creators the raw end of the deal. Brands and creators might prefer to use their own tokens to construct their own economies and interact with fans in their conditions, 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 EP and debuted his streetwear brand through 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.
Launching his own currency is a loyalty play that creates value for his fans, who feel like they’re investing and have some kind of ownership in his brand, says JVCKJ. Users who buy into his $PSTL coin, named after his EP Pastel, get early access to his new releases in music and fashion. They can also”make money off this” if the coin’s value increases over time, states JVCKJ. Going forward, the entrepreneur intends to develop”collectable” NFTs that his fans can buy. “I’m trying to find innovative ways to create my own market,” he says.
Kiev-based fashion designer Anna Karenina believes that everyone who attends her style show could be an”investor”. She issues crypto tokens, also known as first coin offerings (ICOs), to her audience in front of a show, enabling viewers to crowdfund a design or collection.
Opportunities and risks ahead
Risks abound. The volatility of cryptocurrency means 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 is difficult to store cryptocurrencies because of the risk of cyberattacks and theft,” he adds.
But mainstream consciousness and a willingness to try the technology are on the rise. A significant 81 percent of people surveyed by Plutus would encourage widespread crypto adoption. A sizable portion of participants prefer earning crypto for a loyalty reward rather than mining or buying it.
Is it ethically accountable for influencers and brands to market Bitcoin? Agarwal has no difficulties. “I definitely think it’s responsible for companies to accept Bitcoin payment or create their own currency. It’s a terrific strategy concerning how they can pick up customers and take advantage of the disposable income that exists,” he says. “This is the moment, 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 secret to keep in mind is that it is a speculative asset, so you’ve got to be ready to possibly lose your money if it does not work out.” The environmental impact of mining cryptocurrency could also be a significant barrier in a longterm rise, as large quantities 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 could help clarify any queries 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 that I tell people to spend at their own risk.”
For a younger generation, the brave new world of cryptocurrency is an exciting prospect. But not every customer will feel the same thrill. “Understand your current customer base, and 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.”