07.06.2023 - Investment

Luxury Watches Vs Cryptocurrency

Whether you’re a watch collector or looking to turn a profit, it’s impossible to ignore that a luxury watch is a desirable asset. Due to the premium aesthetic, masterful engineering and limited supply, luxury watches are constantly in hot demand.

In a previous study, Luxe Watches found that the luxury watch market yielded a 235% ROI from 2017 to 2022 compared to 27% for real estate and 55% for gold. Yet, luxury watches were still far from the top — being outperformed by cryptocurrency, a digital payment form using encryption algorithms. The research revealed Bitcoin’s ROI hit 3513% over the five years while Ethereum reached a staggering 7367%!

However, a lot has changed within the cryptocurrency and luxury watch markets since these findings. With a crypto crash in late 2022, this already-unpredictable market plummeted in value and directly impacted luxury watches. So, where do both markets stand today, and how do they collide?

How are luxury watches linked to crypto?

The luxury watch market thrives on tradition, so what connects it to the modern crypto market?

Nicholas Hickey, Managing Director at Luxe Watches, said: “Luxury watches are high-end products and therefore attract the very wealthy. In recent years, some of these shoppers invested in cryptocurrency and even chose to pay with Bitcoin or similar. So, naturally, their investments will influence their spending.”

The Wealth Report 2022 found that 18% of ultra-high-net-worth individuals (UHNWIs) owned some form of crypto. It was also reported that in 2021, crypto spending on luxury goods increased by 31%.

Crypto’s influence on the watch market even stretches to the actual products. In May 2019, the Swiss luxury watch manufacturer Franck Muller announced the world’s first functional Bitcoin watch, Encrypto, which doubled as a Bitcoin wallet.

Why did the cryptocurrency market crash?

Unlike traditional investments, cryptocurrency isn’t regulated or based on an underlying asset. The value broadly depends on speculation from investors, making it high-risk and notoriously volatile. The FDA has previously warned that consumers investing in cryptoassets “should be prepared to lose all their money”.

In November 2022, the value of Bitcoin plummeted to $15,760 (£12,648) in November, a year after skyrocketing to $64,837 (£52,035). Similar to stocks, the factors impacting the cryptocurrency market include the Ukraine war, inflation, and higher interest rates. However, the collapse of FTX — the former cryptocurrency exchange and crypto hedge fund —  triggered the crypto crash.

How did the fluctuation of crypto affect luxury watches?

Following Bitcoin’s peak in November 2021, the average market price for luxury secondhand watches steadily rose and, according to The Overall Market Index from Watch Charts, by March 2022 it surged by 32% reaching $46,970 (£37,696). In comparison, the average value only increased by 9% from July to November 2021. However, secondhand watches slowly declined in value after this peak, and after the crypto crash, it hit $34,287 (£27,517) in December 2022.

Nicholas Hickey said: “Like any sector, many external factors can influence the value of luxury watches, and the cryptocurrency crisis certainly had an impact, as did the Bitcoin all-time high. Although, unlike the crypto market, the secondhand watch value didn’t fluctuate dramatically.

“Luxury watches are timeless and will always be in demand, making the market fairly stable. Whereas cryptocurrency is a relatively new market and is constantly changing.”

Before crashing in November 2022, the crypto market had already decreased following its all-time high in 2021. Unlike the luxury watch market, the results were drastic. For example, on 08 June 2022, Bitcoin was valued at $31,107 (£24,965), but by 03 July that same year, it dropped suddenly by 38%.

Nicholas Hickey continued: “Crypto’s plummeting value seemed to split luxury watch shoppers. There was an increase in rare watches becoming available on secondary markets as people were looking for ways to compensate for their crypto losses.

“Yet, while some buyers became more cautious and took a break from unessential spending, others looked for more reliable investment avenues, such as a Rolex, as the demand for firsthand luxury watches grew.”

Recent reports revealed Watches of Switzerland brought in £402 million in a three-month period ending January 29 2023. And Bain & Company estimated that the luxury industry grew by 19-21% in 2022 — stating that the market is more resilient to the recession now than in the 2009 financial crisis. 

The current value of the cryptocurrency market

For the first time since June 2022, Bitcoin reportedly reached above $30,000 in April 2023. The overall market was also up more than $400 billion, following similar gains from other leading cryptocurrencies, Ethereum, Cardano and XRP.

However, just days later, the Bitcoin value dipped again, lowering to $29,440 (£23,627) — 27% down from April 2022 and 55% lower than its peak in November 2021. As of 02 June 2023, CoinDesk valued Bitcoin at $27,129 (£21,648).

Only time will tell what the future holds for cryptocurrency, yet, many have aired their predictions for the uncertain market. The CEO of the crypto firm JAN3, Samson Mow, believes that Bitcoin will reach $1 million in the next five years. Yet, the global bank, Standard Chartered, has stated that Bitcoin could fall to $5,000 levels in 2023.

The current state of the luxury watch market

On 02 June 2023, the average market price for secondhand luxury watches is $31,816 (£25,389) — a 21% decrease from the previous year and a minor 2% rise from June 2021.

Although this figure is the lowest the market has seen since March this year, it’s 17% higher than the Bitcoin value at the time of writing. In comparison, Bitcoin was valued 53% higher than the average secondhand luxury watch just over two years ago.

While the secondhand watch market’s average value has declined slightly, firsthand watch sales have surged. According to Statista, the revenue in the luxury watch segment amounts to $48.38 billion (£38.62 billion) in 2023 and is expected to grow to $54.43 billion (£43.45 billion) in 2028 — showing the demand isn’t expected to go anywhere!

In the past, cryptocurrency has proven to be a lucrative investment opportunity, but its uncertain nature makes it extremely precarious. Although luxury watches can’t offer the same ROI peaks, a classic timepiece is a much more reliable purchase for collectors and investors.

Methodology: https://docs.google.com/spreadsheets/d/1cpmZB-CBX4oxwQsTMRKY4FDqY3fZFVBlvTgIFlG6QLw/edit?usp=sharing