Cryptocurrency wealth is creating a new generation of luxury consumers in the US, Jefferies says

• A surge in crypto prices is driving young people to spend their profit on luxury goods, said Jefferies.
• People under 35 are picking up artwork, luxury brands, and more with their crypto winnings.

The jump in cryptocurrency prices is helping to cultivate a new crop of young, American buyers of luxury goods, with their spending on NFT artwork and high-priced apparel set to further propel sales in the luxury market beyond pre-pandemic levels, according to a report from Jefferies.

Chinese consumers remain the dominant force in global luxury spending. But a "surprise package" since the first quarter has been strong growth in the US year-over-year, the investment bank said in a research note Wednesday. The note outlined findings from visits to 48 stores in New York and Florida where shoppers can find high-end brands including Louis Vuitton and Gucci, whose parent company is Kering.

"Beyond the natural impact of so-called 'pent-up demand' … we flag the significant surge in asset values (from stock market to real estate to contemporary art) and, above all, the significant impact from cryptocurrency wealth which has increased the total of cash transactions again," equity analysts Flavio Cereda and Kathryn Parker wrote.

They said conversations with store managers and assistants appear to flag a significant role played by people under 35 years old cashing in cryptocurrency profits to buy art — including in the form of non-fungible tokens — expensive jewelry, apparel, and accessories.

"Our conversations would indicate as much as 20%-25% of [last 12-month] sales may have been generated by this phenomenon," the analysts said.

The crypto market in 2021 swelled beyond a $3 trillion valuation for the first time, largely as more institutional and retail investors have pushed money into digital assets ranging from coins to NFT art. Bitcoin's price this year has climbed by 62% through mid-Wednesday, with the most traded cryptocurrency above $47,200. But with the crypto market subject to violent price swings, its market cap has eased down to $2.3 trillion.

Channel checks conducted by Jefferies coincided with both the Art Basel international art fair in Miami and a number of important crypto-trading events - "which meant almost the perfect pool of interlocutors," it said.

The firm said US luxury spending in fiscal year 2021 has returned to levels logged in 2019, before the coronavirus pandemic. It said by fiscal year 2023, such spending could be 45% more than in the same period in 2019.

"This is highly dependent on the resilience of the underlying assets which allow monetisation and is therefore implicitly volatile but is at least not subject to the risk of growing government pressure as is the case in China," it said.

Jefferies recommended investors be buyers of shares of LVMH, Kering, retailer Mytheresa, and Watches of Switzerland.