Bitcoin's growth has made a lot of people very wealthy, and more companies are looking at tapping into what could be a lucrative market. The problem, though, is the unpredictable nature of cryptocurrency markets means accepting these virtual currencies comes with considerable risk.
The growth of cryptocurrencies as an asset class has helped create a new type of wealthy individual.
The so-called crypto-affluents are becoming more attractive to luxury brands and retailers which are experimenting with accepting these digital payment methods.
“There are bitcoin users of all ages, across all continents buying and selling luxury goods, including cars and villas. There’s absolutely no reason why a seller should be wary of accepting bitcoin,” Denison founder Bob Denison told Luxury Daily.
The problem for Denison and others is the volatility of cryptocurrencies. Values fluctuate wildly, meaning that accepting them comes with a greater financial risk than traditional currency for sellers. In December, one bitcoin was worth more than $19,000; in the three months since, its value has halved.
It’s hard to run a business if you don’t know how much money you actually have and it doesn’t make financial sense to sell a yacht for bitcoin if the value of a bitcoin is not stable.
It appears some of these brands, however, are more interested in solidarity with the cryptocurrency community than the volume or stability of transactions that come as a result.
“We wanted to make a statement to our customers. By enabling payment with cryptocurrencies, we wanted to demonstrate we also support this system,” Chronoswiss CEO Oliver Ebstein told Skift.
Luxury travel sellers should beware the uncertainty implicit in cryptocurrencies right now, even if the market of high-spending affluents with crypto assets has exploded in size.
Due to the early stage of the crypto-luxury market, however, no one that we spoke to was able to give us a good idea of exactly how large this rising market actually is, although everyone involved appears eager for some statistics to validate their enthusiasm.
Jim Harper, executive vice president of the Competitive Enterprise Institute and board member of the Bitcoin Foundation, has said bitcoin’s true value will be in commerce (such as luxury yachts), not speculation, but the price is too unstable at the moment.
“With most virtual currency projects, I’ve found that there are relatively few real-world transactions to back up the big, speculative bets that investors are making,” The New York Times’ cryptocurrency reporter Nathaniel Popper recently wrote.
Luxury Platforms for Crypto-Affluents
But what if you don’t want to or can’t directly accept cryptocurrencies? Let’s take a step back and look at how they actually work.
Cryptocurrencies are digital tokens sent electronically from one user to another anywhere in the world. Anyone interested can open an account without giving a name or identity, protecting those buying or selling items from drugs to luxury yacht.
Using the virtual currencies to purchase actual products or experiences, however, includes the added step of selling bitcoin in exchange for standard cash.
That’s where sites like The White Company come in. These sites allow the crypto-affluent to skip that switch-to-cash step and make their purchase directly with a virtual currency.
The company describes itself as working on “fine art and luxury good deals that facilitate purchases with cryptocurrencies” and claims that it has coordinated sales of a Super Bowl suite and a Lamborghini for international clients within minutes.
Building a Luxury platform
Another luxury platform is Aditus, which aims to bring the world of luxury to “crypto-affluents.”
In a Medium post, the company described itself as “positioned to introduce a new segment of affluent customers to the luxury lifestyle.” Its website lists luxury villas, personalized travel experiences, luxury vehicle rentals and yacht charters as just some of the products available with an Aditus membership.
Blockchain technology underpins Aditus, as do bitcoin and other cryptocurrencies. Membership comes through the purchase of an Aditus token.
Co-founder and CEO Julian Peh expects luxury travel purchases bought via cryptocurrencies to grow faster than other luxury purchases such as retail and art.
“Many crypto investors have made outsized gains the last two years and the experiential nature of travel often makes it psychologically easier to spend those earnings,” Peh said.
“However, any future growth in luxury travel purchases bought via cryptocurrencies will depend on the willingness of luxury travel operators to engage with this new generation of crypto-affluents, both in marketing and outreach as well as in payment options. It is exactly these last two points – marketing and payment – that prompted us to set up Aditus to bridge crypto-affluents and luxury merchants.”
Aditus’ strategy seems to recognize that high transaction fees on cryptocurrency networks mean that while someone may be a bitcoin millionaire based on the amount of the currency they hold, it can be expensive and time-consuming to convert bitcoin to a currency like the Euro or U.S. dollar.
These wealthy individuals can transact with one of these marketplaces instead of going through the process of converting their illiquid assets over to fiat currency.
In the company’s whitepaper, the luxury lifestyle business is called a trillion-dollar industry and while there is undoubtedly plenty of cash washing about, how much will really make its way to platforms like Aditus?
“With new money pouring into crypto-investment and new crypto-wealth being created every day, there is a similar golden opportunity for the first platform that can link luxury merchants with crypto-affluents,” Aditus said.
The problem for Aditus and others is that the well-documented crash in bitcoin’s value at the end of last year means there are now fewer crypto-affluents than there were three months ago.
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Photo credit: The foredeck of Elysian, a 60-meter Abeking and Rasmussen yacht. Denison Yacht Sales now accepts bitcoin. Denison Yacht Sales