Konstantin Tserazov: NFTs in BRICS+: A Game-Changer for the Luxury Goods Market

NFTs are expected to experience significant growth, particularly due to the rising market of luxury items in BRICS+ countries (Brazil, Russia, India, China, South Africa, Iran, Egypt, Ethiopia, and the United Arab Emirates). This year, approximately 70% of luxury item purchases will occur outside the US. Following the robust growth of the EU market in the first half of this year, the demand is projected to subside in the second half.

BRICS+ Luxury Market: A Response to Inflationary and Devaluation Pressures

The Eurozone has begun transitioning from a higher interest rate environment. Over the past two years, they have sought ways to protect their assets from higher inflation, and luxury goods have emerged as a hedging option. The success in combating inflation is evident, and European consumers are adjusting their behavior. In June, the European Central Bank made its first rate cut in nearly five years, reducing it to 3.75% from an all-time high of 4% since the beginning of Fall last year.

Meanwhile, the US Federal Reserve is unlikely to follow suit. The likelihood is growing that the central bank will refrain from reducing interest rates until year's end. The Fed's balance sheet is at its nadir since the conclusion of 2020, and the tight monetary policy bolsters the US dollar. The dollar index DXY had a strong first half, leading to a +4.47% year-to-date increase.

However, the DXY rally puts downward pressure on the currencies of emerging economies, fueling inflation in BRICS+ countries, particularly considering the actions of some central banks. Since August 2023, the People's Bank of China has not changed its interest rate despite the renminbi's slipping value against the US dollar by -2.12% year-to-date. In China there are elevated inflation expectations despite the current relatively low inflation figures.

In May 2024, the central bank of Brazil cut its interest rate. Over the past 12 months, the US dollar has strengthened by 16.8% against the Brazilian real. These developments encourage consumers to seek better options to protect their money from inflation. Consequently, the luxury goods market is poised to benefit significantly.

Digitally Minded Young People are Core Consumers of Luxury Goods

The relatively higher proportion of young people in BRICS+ countries, compared to the US and EU, implies that the volume of consumption for any product is contingent upon the successful or unsuccessful digitalization of marketing communications between sellers and consumers. This year, Zoomers (individuals born between 1997 and 2012) account for more than half of global luxury goods consumption, with their average spending in this category being twice as much as that of any other generation. Moreover, this disparity in spending habits continues to grow.

The flawless appeal of digitization has enabled luxury brands to establish a global presence by leveraging social media, blogs, and NFTs (Non-Fungible Tokens). NFTs will play a pivotal role and will provide the ultimate competitive advantage to luxury goods manufacturers over their peers in the BRICS+ market, which is valued at approximately $900 billion this year. NFTs will enhance consumer engagement with the brand and foster a profound sense of shared destiny, common values, ideas, and dreams, achieving what traditional marketing methods could only aspire to.

NFTs Connect Brands with People

NFTs stimulate the creation of both online and offline communities centered around beloved brands. Consequently, NFT companies capitalize on the opportunities presented by decentralized value creation, transforming their customers into a community. The asset itself creates a network that connects people to the brand and to each other, while ownership galvanizes consumers to share brand awareness and passion with others, thereby contributing to its creation. Simultaneously, it builds customer loyalty through one-to-one communication and the enhancement of customer retention programs.

Luxury brand owners can unlock numerous opportunities exclusively available to those who have purchased specific NFTs. For instance, before new, high-end items appear in public stores, members of such communities will have access to exclusive perks, such as previewing digital fashion collections and passes to various VIP online events through a special type of NFT—POAPs (Proof of Attendance Protocol). POAPs are non-fungible tokens designed to serve as digital proof that an individual has participated in an event, whether conducted virtually or in a physical setting.

Local producers will also discover that NFTs can become a means to finance their luxury product lines before production begins.

We will observe the rapid emergence of new metaverses and the expansion of NFTs within this digital domain, which the youngest cohorts esteem as highly as the tangible world. Luxury brands, including Bentley, Lacoste, Hublot, Vacheron Constantin, Gucci, McLaren, Dolce&Gabbana, Prada, Lamborghini, and more, are intently tracking the evolution of the NFT landscape.

The escalating demand for NFTs in BRICS+ countries is set to be matched by the establishment of novel trading platforms for these tokens. Simultaneously, reputable venues for buying and selling NFTs, such as metaverses created by some brokers of fine and decorative art, jewellery, and collectibles, will experience increased popularity.

NFTs: Integration into the BRICS+ Financial System

It is worth mentioning another aspect of the current phase of BRICS+ cooperation development that will provide an additional boost to NFTs. Currently, BRICS+ countries are exploring all opportunities to create and use alternatives to SWIFT payments infrastructure. Cryptocurrencies are also a significant focus.

The new alternative ways to financially communicate, or cryptocurrencies, share certain similarities with traditional currencies despite their complex nature - they are fungible (interchangeable).

A larger question mark arose with the introduction of NFTs. These tokens are non-fungible, non-interchangeable, and therefore each token is unique. They also exist only in the digital world and are thus completely unique in relation to what the world has previously known. Fungibility is the property that the units of a good are essentially interchangeable and that these units cannot be distinguished from each other.

However, NFTs have multiple utilities. They can unlock various options in the digital world, similar to real life (IRL). NFTs are increasingly being considered in BRICS+ as a digital tool to facilitate seamless transborder capital and investment movement.

If the traditional capital markets, such as stocks and bonds, are heavily reliant on the dollar-based global financial infrastructure, NFTs are based on blockchain technology. Their unique characteristics open the door to targeted fundraising for various economic projects in BRICS+. The current loan practice in BRICS+, which mostly relies on the dollar facilities of the New Development Bank of BRICS+, has reached a gridlock. The available means are insufficient compared to the remarkable ambitions of BRICS+ to develop new logistical pathways in the world.

In the quest to reinvent the ways BRICS+ attracts financing, NFTs emerge as an elegant instrument to gather funds for purpose-driven projects. In fact, NFTs unleash a new phase of globalization, as BRICS+ is ready to attract capital through NFTs from Western investors as well.

NFTs and Tokenization of Assets

Last but not least, BRICS+ countries are making bold moves toward tokenizing material assets. They see tokens as new opportunities to seamlessly sell and buy assets in partner countries.

The first NFT was minted in May 2014. However, after ten years, the learning curve for this digital instrument has started to rise dramatically. In the first quarter of 2024, the total sales volume of NFTs reached $4.1 billion, representing a 41.4% increase compared to the fourth quarter of 2023. Moreover, many transactions go under radar.

In BRICS+ countries, there is a growing practice where the creator of an NFT does not send it to the buyer but provides access to the NFT without moving it on the blockchain. This is especially true for Bitcoin-based NFTs. If parties trust each other, they simply open access to their NFTs without making transactions on the blockchain. This practice is one of the variants of "digitized barter" between parties in external trade.

BRICS+ ambitions to create new digital financial communication routes also lead to an increase in technological equipment imports. At the same time, countries attempt to boost local machinery production by creating a budget impulse. Meanwhile, these financial measures, combined with the strengthening of the US dollar, keep inflation expectations elevated. Luxury goods gain popularity in BRICS+ as a convenient inflation hedge, but this also unlocks the enormous potential of NFTs.

NFTs offer brands innovative marketing opportunities, enabling them to create buzz and emotional connections with customers. They provide improved customer engagement through exclusive content and experiences, fostering a loyal community. Beyond initial sales, NFTs open new revenue streams for luxury brand producers via royalties on secondary markets and entry into the premium digital goods market.

In the coming months, we will witness how some existing NFTs from several world-renowned brands will receive a boost from demand in BRICS+ countries. Meanwhile, it is the perfect time for these brands to reinvigorate their participation in the global NFTs market and start releasing new NFTs. Many of them tested the digital waters in 2022 and took a pause in 2023. Now, time does not wait. Fasten your seatbelt. NFTs are slated to go through the roof.