New Investment Paradigm: Interdependence Between Crypto and Luxury Watches Markets!

Guest Contributor
Sun, 10 Dec 2023 17:21:53 +0000
Alternative Investments, Luxury Toys, ticker, 3AC, Terra Luna, Three Arrows Capital

In addition to cryptocurrencies, luxury watches have developed as an investment category in recent years. The younger generations, in particular, are interested in investing in luxury watches. The parallel development observed in the crypto and luxury watch markets suggests a potential interdependence between these investment categories. This interdependence implies that fluctuations in the crypto market could significantly influence the secondary market for luxury watches.

Background

The recent cryptocurrency and luxury watch market trends have displayed a notable synchronicity. Between 2020 and 2022, alongside the cryptocurrency boom, there was a substantial increase in the prices of luxury watches, particularly in the secondary market. This surge was predominantly driven by millennials and Generation Z investors, who seemed to diversify their investment portfolios to include digital and traditional luxury assets.

In Oct and Nov 2021, the crypto market saw its peak with a BTC price of over $66,000. In March 2022, the secondary market for luxury watches peaked at over $46,000 in the WatchCharts Overall Market Index. The crypto winter that set in after the collapse of major crypto schemes such as Terra Luna or Three Arrows Capital (3AC) subsequently caused the secondary market for luxury watches to collapse as well.

The Alternative Investment Paradigm

Boston Consulting Group study (March 2023)

According to a Boston Consulting Group (BCG) study published in March 2023, luxury watches represented a market worth $79 billion in 2022, of which around 30% was attributable to secondary trade. And the trend is rising.

The hypothesis about the new alternative investment paradigms posits that there is a strong correlation between the market dynamics of cryptocurrencies and luxury watches. Younger customers, millennials and Gen Z are entering the market. They are also attracted to watches because of the social element, exchanging information over Reddit and other forums and showing off their acquisitions on networks such as Instagram and TikTok.

Third-party online platforms such as WatchBox, Chrono24, and Watchfinder have promoted the market’s growth, especially among Gen Z and millennial buyers. Online sales already exceed auction and store sales, and they are on a trajectory to account for close to 60% of the secondhand luxury watch market by 2026, according to the BCG study.

This relationship between the crypto and luxury watches markets can be primarily attributed to the investment behaviors of younger generations who are simultaneously engaged in both markets. The following key points underpin this hypothesis:

1. Shared Investor Base: The same demographic – millennials and Gen Z – attracted to cryptocurrencies and luxury watches is also likely to engage with luxury watch NFTs. This overlap suggests that investment decisions in one market could influence the others.

2. Digital-Physical Asset Fusion: The emergence of luxury watch NFTs creates a bridge between tangible luxury goods and digital assets. Movements in the cryptocurrency market could directly impact the perceived value and demand for luxury watch NFTs, which in turn could influence the traditional luxury watch market.

3. Market Dynamics Synergy: The luxury watch market’s shift towards NFTs could be both a result of and a contributing factor to the trends observed in the cryptocurrency market. This synergy could lead to a feedback loop, where the growth of one sector fuels the others.

Luxury watch brands are uniquely positioned to embrace the culture of rare limited editions and NFTs, as watch collecting has millions of fans around the globe.

Considering this interconnectedness, it can be hypothesized that a resurgence in cryptocurrency market prices, as observed since mid-2023, will not only positively impact the secondary market prices for physical luxury watches but also boost the interest and value of luxury watch NFTs. This trend would reflect the increasing integration of digital and traditional investment assets in the portfolios of younger investors.

Conclusion

While further empirical analysis and market observation are necessary to substantiate this hypothesis fully, the parallel trends observed in the cryptocurrency and luxury watch markets provide a compelling basis for exploring the potential interdependence between these two distinct yet seemingly interconnected investment categories.

The connection between securities and luxury goods is nothing new. With every stock market boom, the demand for luxury goods such as expensive cars and watches has risen (and then fallen). This is often due to the fact that the profits from the securities were invested in luxury goods.

However, the link between cryptos and luxury watches seems to be even stronger. The new generation of investors sees both cryptos and luxury watches primarily as objects of speculation. In addition, the trend towards NFTs is infusing luxury watches directly into the crypto industry via tokenization on blockchains.