What does high-end fashion have in common with cryptocurrencies?
Well, a whole lot more than you might think! This month, e-tailer Farfetch, was the latest upmarket fashion business to allow its customers to pay with cryptocurrencies. This follows similar announcements from Off-White and Browns, and just last month Gucci also announced that it would allow payment with cryptos. For dedicated fashionistas and crypto enthusiasts, this is good news. Where these brands lead, others will follow.
Why accept cryptos if they’re plummeting in value?
Yes, cryptos of all sorts have been having a very tough time recently, in fact, it’s getting harder and harder to keep up with the losses some have suffered. At this point, in mid-June 2022, Bitcoin — the original and best known crypto — is worth around £22k down from its November high of £67k. That means anyone who bought it in November and is still holding onto it until now, would have lost two thirds of their money.
Worse still, TerraUSD, one of the newer stable currencies (more on stable currencies in later posts), has almost crashed completely with investors losing almost everything they put in.
Won’t these brands lose money?
If the brands held onto the crypto, then yes, the value could potentially keep falling and yes, they would lose money. But they’ve worked out a clever way to avoid this. All the brands use an online crypto exchange to process customer’s crypto payments. It’s similar to retailers accepting credit cards and using banks to process the payments for them.
The goods are still priced in the local currency — pounds, dollars and so on. The exchange converts the payment into crypto at the day’s best availale rate. This is then deducted from the customer’s crypto account, which is usually available on their phone. From the customer’s point of view, it’s very similar to using a mobile banking app or Apple Pay.
The big difference is what happens next. The brands have instructed the Crypto exchange to automatically and immediately convert the crypto back to cash. That means the brand only holds/own crypto for a few nanoseconds, removing the risk of it plummeting in value (for the brand at least, for consumers it’s another story altogether).
If it all ends up back in pounds what’s in it for the brands?
Well, firstly, they’re very aware of the fact that investing (in the loosest possible sense of the word) in cryptos has become popular. Figures vary but over three million people in the UK currently hold some form of crypto*. Add to that the fact that there are still relatively few places to spend it, so accepting payment in cryptos raises their profile with potential customers.
Secondly, this payment method isn’t available to everyone. No, no, no! For most brands, this payment option is only available to exclusive customers. How an exclusive customer differs from any other customer isn’t exactly clear. But being defined as an exclusive customer, by an up-market brand carries a certain kudos — and just might encourage the exclusive customer to spend more.
Finally, its good PR. Remember the adage, there’s no such thing as bad publicity. Positioning themselves as a market leader and announcing they are going to accept cryptos guarantees favourable media coverage and publicity, and if there is one thing all brands need and crave, it’s good publicity!
Crypto currencies carry a very high risk of investment loss. To understand more, read our series on crypto currencies here.
*Cryptocurrency Statistics UK Edition