The digital transformation of watchmaking


Hedging against crypto uncertainty

January 2023


Hedging against crypto uncertainty

With market crashes and the dramatic downfall of exchange giant FTX dominating the headlines, 2022 ended with the crypto world in chaos. So, are brands and retailers bracing for a crypto ice age, or racing into the crypto future?

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ith sceptics quick to write off early movers as opportunistic and frivolous, last year’s extreme market volatility could make crypto adoption seem risky even for its most ardent supporters. But for many Swiss watchmakers, there remains a sense that crypto is not a gamble.

Switzerland was an early digital currency evangelist. In 2016, the city of Zug – known as ‘Crypto Valley’ – became the first region to accept crypto for tax payments. Since then, the City of Lugano has taken things one step further, launching its own official payment token called LVGA. Residents of the municipality can use LVGA to pay for a variety of public services. And plans are afoot to support transactions at private businesses. According to the city’s administration, market volatility does not pose a risk because crypto payments are ultimately received in Swiss francs.

Switzerland was an early digital currency evangelist. In 2016, the city of Zug – known as ‘Crypto Valley’ – became the first region to accept crypto for tax payments.

A third party to absorb the risk

There is a similar attitude in the watch industry. For LVMH-owned TAG Heuer, accepting crypto payments is the first step in a long-term strategy. “We accept cryptocurrency as it is the means of payment in the community for buying watches, but without taking any risks ourselves. We use a third party who absorbs the crypto risk,” says Chief Executive Frédéric Arnault. TAG Heuer is not alone; Hublot, Jacob & Co., Breitling, Chronoswiss, and Norqain all accept payment in crypto. Jacob & Co. recently launched its Astronomia Solar Bitcoin model as ‘a symbolic and horological tribute to the world of cryptocurrency’. While the 25-piece limited edition can be purchased using crypto, the company “is obligated to determine a fixed price in official local currencies, as per international regulations,” says CEO Benjamin Arabov. As a result, Bitcoin or altcoin payments are made at the going rate on the day of the transaction, regardless of where the sale takes place.

Jacob & Co. recently launched its Astronomia Solar Bitcoin model as ‘a symbolic and horological tribute to the world of cryptocurrency'.
Jacob & Co. recently launched its Astronomia Solar Bitcoin model as ‘a symbolic and horological tribute to the world of cryptocurrency’.

To facilitate this type of payment processing method, Jacob & Co. uses service provider BitPay. “When someone pays in crypto, they lock in the exchange rate, process it right away, and pay us in fiat [currency]. So, if the price goes down in that moment, they take the hit. They charge us a fee for processing. But besides that, we don’t absorb the risk, which is a good deal for us,” says Arabov. Leading crypto payments processors can make transactions borderless and offer other benefits such as no chargebacks and fraud protection. They also typically only charge a flat one-percent transaction fee, making them more attractive than many credit card companies, which – depending on the provider and location – can charge up to 12 percent. For businesses this can mean the difference between a profit or loss.

For many watch brands and retailers, BitPay seems to be the processor of choice. “They were the first,” says Alon Ben Joseph of Ace Jewelers in Amsterdam, a trail-blazing retailer which began offering payment in crypto back in 2016. Other reputable authorised retailers using BitPay include Maison Birks in Canada, CRM Jewelers in Miami, and Stephen Silver Fine Jewelry in Silicon Valley. However, BitPay is certainly not the only crypto payment gateway provider. Coinbase, TripleA, and Utrust (the latter supports Lugano’s initiative) are just three of many other recognisable names that offer similar services. For smaller companies conducting e-commerce through Shopify, WooCommerce, or Wix, it is also possible to integrate with multiple crypto payment processors. A simple plugin automatically converts crypto to fiat currency and settles the balance within hours. This feature means merchants need not buy, hold, or invest in cryptocurrency to offer it as a payment method.

For many watch brands and retailers, BitPay seems to be the processer of choice when it comes to cryptocurrencies.
For many watch brands and retailers, BitPay seems to be the processer of choice when it comes to cryptocurrencies.

Much-needed regulation and governance

With the collapse of FTX wiping out billions in market value, there is a sentiment that crypto is still very much the ‘Wild West’. However, according to Coindesk, at the time of writing, crypto’s market cap was still above $835 billion and there are more than 21,750 cryptocurrency projects worldwide. What the market implosion may do is accelerate calls for regulatory oversight and governance. It has also prompted some crypto holders to consider options other than centralised exchanges.

In the wake of the FTX debacle, the CEO and Chairman of crypto wallet provider Ledger, Pascal Gauthier, said in a televised interview with Coindesk: “Last week was the best week in the history of Ledger… With the new [wallet], you have connectivity to everything. It is where you keep your private key, and connect to buying bitcoin, swapping, staking… You don’t need to leave money on an exchange anymore.” The French start-up, which raised $380 million in a Series C funding round last year, has onboarded new investors including Financière Agache – a holding company controlled by Groupe Arnault, which in turn owns LVMH.

What the market implosion may do is accelerate calls for regulatory oversight and governance.

Back to hardware?

No doubt buoyed by its association with Ledger, LVMH brand Hublot also remains bullish. “It’s clear that the crypto community is experiencing radical shifts at the moment, but there also seems to be a lot of optimism. In any case this is something new for all of us, so we remain hopeful,” said Chief Executive Ricardo Guadalupe in our recent interview. Guadalupe seems to share Gauthier’s vision of a future not based on centralised exchanges. Earlier this year, Hublot released its Big Bang Unico Ledger chronograph with each individually numbered watch featuring an exclusive Ledger crypto hardware wallet. The limited-edition set was billed as ‘a gateway to a self-custody future’, meaning one in which the individual retains sole control and possession of their digital assets.

Hublot's Big Bang Unico Ledger is delivered with a crypto hardware wallet.
Hublot’s Big Bang Unico Ledger is delivered with a crypto hardware wallet.

This kind of ‘cold wallet’ hardware storage solution, which is not connected to the internet to protect from hackers, is not something everyone will get on board with. In fact, to the digital-native generation it may even be a strange concept. But watching who is exploring new options in the face of market turmoil gives a clear indication of which brands are betting on a long-term crypto future.

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