Cryptocurrencies, not long ago relegated to a dark corner of the internet, are now being used to purchase everything from townhouses to coronavirus tests to art. You might fairly wonder when we’ll see collector car prices listed in Bitcoin or Dogecoin or Ethereum.
The answer is it’s already happening.
“What’s taken place is a transfer of wealth to a lot of younger investors,” said Nick Dossa, dealer principal at Vegas Auto Gallery. Dossa has been accepting Bitcoin in vehicle transactions since 2017 – back when the currency was first booming and the “crypto rich,” mostly tech-savvy millennial types, were gobbling up Lamborghinis. Now, as a new “surge” in demand emerges among those wanting to use Bitcoin as payments, demand is spread much broader, from Ford GTs to Bugattis.
Dossa is not alone in contemplating how collector cars—one of the most tangible of assets—fit into the world of digital currencies.
From Delusion to Reality
In early 2019, Warren Buffett characterized Bitcoin as fake money carrying “no unique value at all.” Only “charlatans” looking to get rich quick were investing in it, he said.
The world has transformed in the two years since, with the pandemic turning global markets upside down and inside out. As a result, the Oracle of Omaha’s predictions on several investment vehicles, including his view that Bitcoin’s bubble had burst, proved to miss the mark.
Shares of Buffet’s Berkshire Hathaway investment firm have increased 24 percent since he called the leading digital currency a “delusion,” well below the gains notched by the S&P 500 over the same period. Bitcoin, meanwhile, is up some 1,290 percent, outpacing gains clocked by red-hot Tesla Inc.
Now, investors ranging from Stanley Druckenmiller to Massachusetts Mutual Life Insurance are buying cryptocurrency, lending digital money a level of legitimacy it recently lacked. Regulators, meanwhile, are learning to live with these alternatives to fiat money.
With newfound clout comes spending power.
Among those benefitting are younger car buyers who invested early and now have virtual money burning a hole in their real pockets. Data recently released by Mode, a digital-currency trading platform, showed 79 percent of its users are male, mostly under age 30. Many want to exchange their Bitcoin for hard assets, including something with four wheels.
The crypto rich are becoming a force
Barrett-Jackson General Manager Nick Cardinale said auction companies can’t ignore this trend, just like they can’t ignore credit cards or cashier’s checks in lieu of cash. Younger collectors make up an increasingly bigger slice of the classic car market—and they have a disproportionate appetite for restomods that Barrett-Jackson in particular has sold at ever more dizzying prices.
“They’re going to expect us to take their Bitcoin,” Cardinale said.
Barrett-Jackson is experimenting with digital transactions this year, following a broader trend among auction houses tiptoeing into the world of cryptocurrencies.
Advocates of Bitcoin payments say they represent a more efficient method of payment and a godsend for those wanting to execute cross-border transactions. Many of the concerns around illegal usage have been assuaged by regulation, more robust documentation requirements, and a growing network of third-party transaction brokers. These factors have brought certainty to the market and helped support a recent run-up in crypto valuations that creates immediate wealth.
“The guy who bought one Bitcoin for $10,000 last summer can convert that to a $50,000 Mercedes today,” Dossa said. His dealership, which sells mostly pre-owned luxury cars, is one of only a handful in the U.S. actively courting cryptocurrency for payments. “We’re definitely a pioneer.”
Dossa won’t be a rare bird much longer. He’s been receiving several calls from other dealers asking for tips to deal in Bitcoin, or help processing payments from buyers wanting to use it. Recent comments by Elon Musk about his enthusiasm for digital currencies has fueled optimism as well. Tesla plans to take Bitcoin in exchange for its electric vehicles in the future.
The classic car market is poised to be a beneficiary, especially if auction companies can figure out how to minimize risk for sellers of high-end collectibles, Cardinale said. The company began exploring digital-currency payment options in 2019 and is becoming more comfortable as time goes on.
“Bitcoin is slowly becoming the way of the future,” Cardinale said. That’s a good thing for collector cars, he added. “It brings more people into the marketplace, and more collectors to the hobby.”
Passing on the risk
But cryptocurrencies have plenty of baggage, said Paul Vigna, a Wall Street Journal writer, commentator, and author on the subject. These assets were once seen as extremely risky because they wildly fluctuated and were considered a potential vehicle for criminal activity. Now, cryptocurrency is seen by some as a legitimate hedge against inflation and more traceable than cash.
Even so, holding Bitcoin is still as risky as owning shares in a company. Offering to pay someone in Bitcoin is not much different than offering to buy a car with Ford Motor Co. stock. Both are finite resources and speculative in nature.
Vigna said that although Bitcoin is much more likely to appreciate than shares in Ford or most other blue chips, it doesn’t pay a dividend to those who hold it. Still, it is extremely easy to convert to cash and use as currency.
Ready or not, auction companies are starting to sort out the risks and benefits. Christie’s in February sold a digital collage to a collector paying $69M in cryptocurrency. Weeks later, Sotheby’s CEO Charles Stewart told CNBC his auction house is considering an option that allows bidders to use digital currencies to pay for physical artwork. “Maybe we accept crypto for paintings and then pay the consignors in cash, or maybe sellers will want the cryptocurrency as well. That’s all coming, if managed well.”
Cardinale said one of the challenges is figuring out transaction fees, and protecting against volatility. If the market for Bitcoin fluctuates between an accepted bid and the actual transaction, who makes up the difference, for instance? “You kind of are going to need a third party involved.”
Dossa agreed. Vegas Auto Gallery runs all transactions through the third-party Bitpay service. A car buyer wanting a $100,000 used Bentley sends the amount from a digital wallet to Bitpay; Bitpay then sends cash to the dealership in a matter of minutes. About 7 percent of Vegas Auto Gallery’s sales are done this way (including many multi-million-dollar deals), with buyers covering a 1-percent transaction fee.
Luke Willmott, who runs London-based Auto Coin Cars, has found big success as a digital-payment processor for dealers based largely in Europe. His site is the equivalent of a Cars.com, providing third-party listings of vehicles by wanting to attract those who want to pay with cryptocurrencies.
Willmott is a digital currencies expert, not a car expert. His job is to oversee the transaction so that a seller gets the asking price no matter how the buyer pays. “Dealers won’t understand or know how to deal in cryptocurrency,” he said. “Our payment solutions take all the stress out of the transaction.” Rates for vehicles are constantly updated online to reflect currency fluctuations.
More than 600 dealers in the U.K. have utilized his service, and 30,000 vehicles are currently available. “Since COVID hit, we have seen a nearly 9000-percent increase in traffic to our site,” he said. Auto Coin Cars has sold more than 1,000 vehicles to crypto buyers in 2021, Willmott said, from cars costing 5,000 British pounds to those costing 2 million.
“After property, the next luxury asset people want with their Bitcoin is cars,” Willmott said. Even automakers—and not just Tesla—are getting into the mix. Volvo is the first manufacturer to sell a new car utilizing Auto Coin Cars, he says.
STARTING WITH NFTs
Cardinale said many have asked Barrett-Jackson to facilitate cryptocurrency transactions, but the auction house will walk before it runs when it comes to crypto.
Barrett-Jackson is offering sales of digital assets that carry so-called nonfungible tokens, or NFTs, he said. NFTs are the hottest trend in investing, with sports memorabilia companies, fashion houses, and online tech companies offering various NFTs for sale.
“Think of it as a digital baseball card,” Cardinale said.
Barrett-Jackson is creating NFTs, or limited-run digital snapshots stamped with a unique bit of code, to commemorate key upcoming auctions, including an electric Hummer SUV, Ford Broncos, and a Mach 1 Mustang. The NFT will capture when these cars cross the block.
If you’re not sure what a digital baseball card could possibly be worth, you’re not alone. But that isn’t going to stop people from figuring it out.
“You don’t know what the value is until it’s out there,” Cardinale said. It will be like having a star’s rookie card. You will own it forever.”
That Christie’s sale in February was an NFT—a digital work of art called “Everydays: The First 5000 Days,” by artist Mike Winkelmann.
Barrett-Jackson’s NFTs are likely to sell for a fraction of that $69.3 million. But it’s not a stretch to believe that someday there will be far larger transactions in the classic car world made possible by digital currencies dismissed as worthless not long ago.