Rolex’s top models (and other luxury watch brands) are suffering a sharp downturn in the resale market.
As the bear market in cryptocurrencies and risky stocks drags on, this year’s watch market gains are on their way out.
Some discontinued models from major brands fell as much as 50% in recent months.
Watches from the biggest brands are experiencing a colossal price drop in resale markets. Fears of recession loom as one of the causes of the loss of buyer interest. But some point to the cryptocurrency market crash, also known as “crypto winter,” as the main factor.
The price drop of all cryptocurrencies and their collateral markets such as NFTs, DeFi and others has wiped out big gains. Terra’s collapse in early May and bitcoin’s spectacular collapse to $18,000 in June wiped tens of billions from that market. The number of millionaires fell precipitously and, with them, the demand for luxury goods.
Watches from major brands such as Rolex, Audemars Piguet and Patek Philippe are showing prices that were unimaginable a year or two ago. During the pandemic, unprecedented growth was generated in the markets, which was driven by easy money monetary policy. Major risk assets such as bitcoin enjoyed astonishing price increases. Luxury items became highly sought-after goods among the beneficiaries of the booming markets.
The watch business before the crypto winter
The crypto market winter has been affecting dozens of companies linked to it directly or indirectly. Exchanges are bearing the brunt, followed by lending companies and bitcoin miners. Outside this environment, there are also seriously hit sectors and luxury watches is one of them.
After two years of intense speculation in the resale market, watch prices are finally falling back. Those who know watches know that accessing a Rolex in a retail store is a practically impossible task. Representing goods for the individual prestige of its users, the manufacturer launches to the market limited quantities, but of high quality.
During the height of demand, during the pandemic, the company allegedly refused to increase production, driving the price to disproportionately high levels. New millionaires in the cryptocurrency world were appearing daily and many of them wanted to wear the wristband badge expressing their new financial status. Some people were taking years on the waiting list to get models like the Daytona or Submariner.
Although the shortage of those products has been pronounced since 2016, with the historic high of cryptocurrencies in 2021, it became chronic. The fall of the markets in parallel with the crypto winter reversed that reality in a very short period of time. Now, the price of these luxury items is steadily declining.
Fact: during the worst part of the pandemic, with trade disruption, Rolex production was also forced to shut down, creating acute shortages as millionaires emerged from the crypto world eager to get their watches.
The Rolex roller coaster
As such, there are three theories that seek an explanation about the scarcity of these high-end watches. The first one is that the company refuses to increase production (1,000,000 per year and no more). At the same time, the number of people who want to buy them keeps growing. Such a scenario leads to a shortage situation that drives up prices.
The second hypothesis goes much further and would be that the company deliberately decreases production to increase the feeling of scarcity. If a person is unable to buy the Daytona, then he or she turns his or her attention to other models. In that sense, a chain reaction would be created that could favor the overall sales of the same brand.
The third theory is that the shortage was a natural phenomenon in a globalized world.Either way, the crypto winter came to pulverize this situation whatever the cause that generated the high prices in these luxury items. However scarce they were, it is now proven that the Swiss brand is not immune to the severity of the markets. If the stock, real estate and cryptocurrency sectors fall, so will the income of its protagonists and, with it, their ability to acquire Rolex or other goods.
With this in perspective, the current context of falling prices can be neatly understood. For example, the Cosmograph, one of the most in-demand, fell 16% from its peak of $48,500 in mid-March. It is now trading at $39,500, according to Watch Charts data.
All models down
The fall in the price of Rolex watches is generalized to all models. During the last three months the plunge would be 10% in the resale market. Some analysts claim that it is now easier to reach these items since the interest has dropped dramatically. Resellers want to get out of them as they see that lots continue to come in at a faster rate than demanders.
“There could come a scenario where a further drop in watches could demotivate resellers.”
This situation leads many strategists to estimate that the value of those will continue to fall in the months to come. Analysts from major portals say that the drop could represent good news for those who have been struggling for a long time to get a rollie. However, they caution that those who have managed to buy one should sell before prices plummet further.
These analysts fear that the crypto winter will drag on and create further damage to the sectors that depend on it. The prospect of a recession in the world’s major economies is one that suggests this dark scenario could be true for the Swiss mark and other alternatives. It should be taken into consideration that there is no consensus among specialists about how long the bear market in the cryptocurrency universe will last.
In any case, the scenario could come in which a further drop in watches may discourage resellers. With that, seeing those high-end items on retail counters would be less unlikely. That would lead to a drop in millennials’ interest in acquiring these products. The latter, would be the worst-case scenario for the company, although it would not be the end of it by a long shot.
Crypto winter bursts the bubble
According to Bloomberg, the rise of cryptocurrencies and risk assets inflated the bubble in the watch resale market. Now, with the fall of all assets, it burst leaving a significant hole due to falling prices. According to that media outlet, demand has relatively held up, but what has been ripped apart is the reseller market.
For Bloomberg, the runaway demand of the past few years was unsustainable over time and had to recede at some point. “So far, demand for new watches as for other types of luxury goods is holding up. But what is happening in the secondary watch market is a stark reminder that the bling boom, particularly in the U.S., may not last,” the site notes.
The truth of all this is that the top 30 Rolex models are well below the price they brought. On the other hand, investors could start to see these products as a future investment when the crypto winter has receded from the scene. As already highlighted, there is no certainty as to when that will happen, but it is almost certain that digital currencies will make a price comeback.
When that happens, the people who are investing now in that market will reap the rewards. Thus, the new wave of crypto millionaires will be eager to acquire their prestige badge and again the cycle of high watch prices will return. Consequently , current cryptocurrency and Rolex buyers could see considerable returns in the not too distant future.
Here’s how bitcoin is doing right now
After several days of slight recovery, the main cryptocurrencies have slowed their gallop. The rise, which was moving simultaneously with the green numbers in the stock markets, received negative news. In recent days, it became known that the electric car brand, Tesla, had sold 75% of its positions in Bitcoin as reported by INVESTOR TIMES.
Although this news did not have a catastrophic effect as it would have had in 2021, it was enough to slow the rise. At least that is the assumption of those who believe in the influence of Tesla CEO Elon Musk on the price of digital currencies. This aside, the value of the pioneering cryptocurrency stands at an undefined $22,500, according to data from Coingecko.
Although that price is considerably better than the $18,000 on June 13, it is far from marking a trend out of the crypto winter. The immediate future of BTC’s value would be closely related to the Fed’s monetary actions in the coming hours. This July 26-27, the Federal Open Market Committee (FOMC) meeting will be held. At the same meeting, a new interest rate hike will be implemented.
The rate hike is expected to be 75 basis points instead of an extreme 1%. This would make sense given expectations that inflation in July will recede. During this month, energy and commodity prices have fallen compared to June, which would determine a very likely drop in inflationary pressure. It should be recalled that in June the CPI reached a new 40-year high in the United States at 9.1%.
Even discontinued watches won’t withstand the crypto winter
Returning to the topic of luxury watches, it’s worth noting that even discontinued models are not escaping the downturn. Although Rolex never talks very loudly about the models it will stop producing, collectors live on the rumors. Speculators bet big in this area, so a watch that will no longer be produced acquires a higher value in the resale market.
The lower the number of copies available, the more money collectors are willing to pay for them. The idea is to acquire some before the remainder ends up in auction houses where it will be more difficult to get hold of them. But this scenario, it must be insisted, is based on speculation, since the company is not given to releasing much information about the models it is going to stop manufacturing.
The thing is, however, that the crypto winter has also passed over this formula. At the end of March, the company discontinued a number of models, which have now collapsed. Reseller losses in that area are estimated to have been in the millions. For example, the Oyster Perpetual, which was launched in September 2020 in different colors and sizes, is a clear benchmark. After reaching prices up to 8 times higher than announced and rumors began to emerge that the production of some types would be stopped, it was taken for granted that the price would skyrocket even more.
But the reality is turning out to be quite different. Some of these types of Oyster Perpetual rose with the rumors of leaving the catalog, but when the fact was confirmed their prices began to fall. Such is the case of the 36 mm power blue, which fell 48% in March from €45,000 to the current €23,500 euros, according to data from the authorized reseller Chronext collected by the Watchpro.comportal.
Watch lovers will be back sooner or later
An important aspect to consider is that, unlike other assets, watches have a fan base that tends to be very loyal. For decades, these have created a baseline of value that keeps them close to the market, opine Morgan Stanley’s Edouard Aubin and Elena Mariani. In a note quoted in Business Insider, they say watch enthusiasts are not giving up.
“While the level of growth in the 2021 secondary market may be unsustainable, we believe there is a solid value base in ‘investment grade’ luxury watches,” they comment. Referring to lovers of these items, they add, “those people are not going to disappear just because the market falls.”
They further express that there is a new generation of collectors who are discovering the balance between enjoying the item and profiting from it. With a crypto winter putting downward pressure on prices, the theory that investors are taking advantage of this to extract future returns is gaining momentum. One aspect that is little talked about is that many of the pandemic savings are still at a high level, which could soon stimulate consumption, say the aforementioned Morgan strategists.
The analysts conclude that no matter how low the markets and earnings are, discontinued watches are still in short supply. Thus, they believe that there is little chance of getting a high-end model in a retail store.
The instability of cryptocurrencies, the source of trendy millionaires, may be slowing prices, but that doesn’t translate into watches being in common use among users.