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Even if the luxury brand wins its case against the creator of the virtual interpretations of its famed bag, the NFTs can’t be erased, at least not in any conventional sense.

The legal battle between Hermès and the creator of the MetaBirkins — virtual interpretations of the famed bag sold as non-fungible tokens (NFTs) — is shaping up as one of fashion’s big intellectual-property fights of the blockchain era.

But whatever the outcome, luxury brands probably won’t like the precedent set.

In its lawsuit filed Jan. 14, Hermès argued that Mason Rothschild misused the Birkin name by selling a collection of 100 MetaBirkin NFTs in December. Its case is similar to countless others brought by luxury brands against alleged counterfeiters: the label claims Rothschild infringed on and diluted Hermès’ trademark, and that consumers might be confused into thinking Hermès has some association with the MetaBirkins.

The technological underpinnings of NFTs turn what might have been an open-and-shut case into something far more complex, legal experts say. An NFT is a blockchain entry pointing to a digital asset such as an image, which itself resides on a separate server. It’s effectively a receipt proving ownership, rather than the image itself.

“Many people assume that, when you talk about an NFT, the content of the NFT is inside the token, which it is not, and because it is not, there is no unauthorised reproduction,” said Primavera De Filippi, co-author of “Blockchain and the Law” and a researcher at the National Centre of Scientific Research in Paris and Harvard’s Berkman Klein Center for Internet & Society. “From a strictly speaking IP perspective, I don’t think there is much leverage.”

It leaves Hermès having to lean into other arguments. Even if it ultimately prevails in court, it would find it difficult to take the existing NFTs out of circulation: those MetaBirkins will continue to exist on the blockchain. If anything, a drawn-out legal drama could drive up their value with collectors.

A spokesperson for Hermès said the company does not comment on ongoing legal action.

Rothschild, who had not sent comment by the time this story published, has previously said the MetaBirkins name is sufficiently different enough to not cause confusion. He also posted disclaimers on the MetaBirkins site and in other locations stating the project was not associated with Hermès and the Birkin, though in its suit Hermès cited these as additional examples of infringement.

The issue of how shoppers can identify a genuine Hermès product is one reason the company might not be thrilled about Rothschild’s MetaBirkins. Hermès points to the quality of its bags, from the leather it uses to the training it gives the artisans who stitch them, as a distinguishing feature and the reason for the famously limited supply of Birkins. When it comes to virtual goods, these distinctions disappear.

“This is a battle for ownership of luxury in the metaverse,” said Susan Scafidi, academic director of the Fashion Law Institute at Fordham University. “In the virtual world we can’t rely on claims of scarcity and quality in the same way, and we’ve found a way to create artificial scarcity for what is essentially a digital image via NFTs.”

What Happens If Hermès Wins

Hermès has demanded in its suit that Rothschild turn over any profits from the MetaBirkins as well as pay damages and Hermès’ legal costs. Not only that, it insists Rothschild “deliver up for destruction to Hermès all unauthorised products and advertisements in his possession or under his control” bearing its trademarks.

But once an NFT is created, the entry can’t be erased from the blockchain. The nearest approximation might be “burning” the NFT, meaning transferring it to an inaccessible address.

Even if Hermès will settle for burning any MetaBirkins it can get its hands on, it’s not straightforward whether a court would authorise it to do so.

“To me, the big problem is, from a precedent perspective, it will be dangerous to say that these tokens will need to be destroyed because they are linking to something as opposed to actually reproducing,” said De Filippi.

Hermès does have other options. One step it has taken with the MetaBirkins already released is to ask companies such as OpenSea, the largest NFT marketplace, to remove them from sale. Though blockchains are decentralised, meaning there is no one authority overseeing them, the main ways NFT holders sell or see their items are still centrally controlled platforms.

OpenSea complied, but the MetaBirkins are still listed on other NFT marketplaces, such as LooksRare. Their price appears to have fallen sharply: before the NFTs were removed from OpenSea, they were trading for nearly $20,000 and one had sold for roughly $46,000. On LooksRare, one sold on Jan. 22 for the equivalent of about $3,600.

But it’s possible the notoriety they gain from the legal fight could prompt their value to grow.

“Just knowing you have one of the first few official formal black-market goods — disapproved, litigated, but they can’t take it from your [crypto] wallet — that would make it have some pretty serious value,” said Jacob Martin, founder of JTM Tech Law, which advises clients on legal issues around NFTs. (Martin said he spoke to Rothschild about the MetaBirkins in the past but was never contracted or paid for any work.)

While there is a chance the parties will settle before the case makes it to trial, the fact that Hermès decided to pursue a case at all is interesting in itself, according to Scafidi.

Rothschild’s main defence has been that his NFTs are original art, and luxury brands have historically been reluctant to be seen as attacking artists. Hermès did not, for instance, take action against a previous work of Rothschild’s involving the Birkin name and image. Last May, he collaborated with artist Eric Ramirez to release the Baby Birkin, a single NFT showing a fetus gestating in a transparent Birkin bag and sold for $23,500 at online retailer Basic.Space.

Scafidi believes the message from Hermès is that it won’t bother to go after one-off works but will pursue cases against a series of virtual goods.

“They let the painting in the gallery stand while they go after the T-shirts or the vinyl copies on the corner,” she said. “This is smack in the grey area.”

The swelling ranks of the crypto-rich are boosting US luxury sales, and unlike previous generations of tech wealth, many are splashing out large sums on fashion that gets them noticed.

On a recent ski trip, Meltem Demirors, a crypto investor and chief strategy officer of CoinShares, a digital asset management firm, skipped the usual outdoor brands and wore a full-body Fendi jumpsuit. It wasn’t her first choice, however.

“The only reason I have the Fendi skisuit is because Prada doesn’t make one,” she said.

Crypto isn’t just changing the tech industry; it’s changing how it dresses too. While there isn’t just one style across the crypto community, many in it value fashion as a means of self-expression and are willing to spend on it. Of course much of the industry is also young, newly wealthy and looking to broadcast that success, often with luxury products.

Demirors, a New Yorker with a predilection for black, said she likes the ease of Prada’s clothing, though she also gravitates toward Bottega Veneta and occasionally Louis Vuitton. Her friends in the industry have their own preferences. One favours Fendi as her go-to. Another who is more conservative opts for Chanel and Balmain suits.

It’s not just women buying up high-end labels either. “Big @dior guy,” Cooper Turley, a young crypto millionaire and influential strategist in the space (who recently issued an apology for old tweets containing racist and homophobic slurs), captioned an Instagram post where he’s in full Dior in front of a Dior store.

“People are living out the tech version of a rockstar lifestyle,” Demirors said. “There are a lot of people who will have no issue going to a designer store and spending $50K, $100K in one go.”

It helps that the surging value of crypto assets has generated a huge amount of disposable wealth in recent years, with 2021 reaching record highs. Bitcoin broke the $60,000 mark and far outpaced other types of investments such as stocks and gold. Ether, the native currency of the Ethereum blockchain, started 2021 at less than $1,000 and closed it at nearly $4,000. Non-fungible tokens (NFTs) of cartoon apes or pixelated punks sold for millions in some instances. Altogether, the value of the world’s cryptocurrencies topped $3 trillion. Only recently have they plummeted back toward earth.

Even if crypto assets still tend to be concentrated in the hands of a relative few — mostly men — all that money helped to fatten the ranks of the crypto-rich, who look to be playing a major role in the strong growth of the US luxury market. In Miami, which has become a hub of the crypto industry, as much as one-quarter of luxury sales over the past year may have been driven by crypto riches, said Jefferies analyst Flavio Cereda in a Dec. 15 research note.

“We believe that, beyond the natural impact of so-called ‘pent-up demand’...something else is at play,” he wrote. “First and foremost, crypto.”

In a follow-up note on Jan. 24, he wrote that, despite the latest plunge in the crypto market, the trend is “likely to remain a driver of significance.”

A hefty share of new wealth has also gone toward luxury goods as the pandemic limited opportunities to splash out on expensive trips and other experiences, according to Federica Lavato, a leader in the fashion and luxury goods practise at Bain & Company.

Fashion is beginning to take notice. Fendi just teamed with Ledger, a maker of hardware wallets for securely storing crypto assets, on branded accessories. Philipp Plein announced last year that it would begin accepting cryptocurrency as payment. Brands such as Gucci and Dolce & Gabbana are releasing NFTs, which appeal most to the crypto faithful.

Donté McGuine, a celebrity stylist who has worked with rapper Vic Mensa and actor Luna Blaise, said he’s taken on four clients in the crypto industry in the past year, including Demirors, and gets inquiries from others all the time. While he was hesitant at first, they convinced him with their willingness to push limits.

“These girls, they want Comme des Garçons, they want Bottega, they want Balenciaga,” he said. “They’re not buying the hats and the shoes. They’re buying the runway pieces.”

At the Rick Owens and Tom Ford stores in the Miami Design District, associates said they tend to see an influx of shoppers around crypto conferences in the city.

Those brands are among the ones her younger clients in the crypto industry frequently request, said Victoria Cárdenas Hitchcock, a San Francisco Bay Area stylist and personal branding consultant. The interest in Rick Owens tends to start with the sneakers, she said.

It’s a radical departure from the tastes of her traditional tech clients.

“None of them were asking to stand out with bright colours, with patterns, with graphics,” she explained. “This is more of a lifestyle.”

While they may be the easiest to spot, the “over-the-top wealth signifiers” tend to be a minority in the crypto community, according to Raihan Anwar, head of community and culture of Friends With Benefits, a well-known crypto group centred on crypto’s intersection with culture. Many members keep their looks more toned down, he said, though they are still spending on fashion. Some members buy streetwear and sneakers. Others lean into labels such as Issey Miyake Pleats Please or Acronym.

The clothing preferences in crypto stem from its roots online, according to Demirors, and personal style is an important component in how members of the community view each other. The interest in fashion cuts across gender lines and professional titles — even top executives go for designer looks.

“The industry evolved so much around memes and meme culture and internet culture,” Demirors said. “Generally, I think people want the way they physically look and the way they operate in the real world to reflect their online persona.”

Many in the business are flush with the funds to do so.

“I work with rich girls all the time, but this new wave of crypto money, it’s a little bit richer,” McGuine said.

His crypto clients typically don’t even ask about prices, he added. The same applies to many men in the industry.

For some, dropping huge amounts on luxury goods seems to be an end in itself. When controversial crypto figure Richard Heart isn’t marketing his polarizing and sometimes criticized cryptocurrency token, he’s posting unboxing videos about $65,000 luxury hauls on YouTube or images of himself in pricey clothing on Instagram.

“I want something that screams at a distance,” he said in an interview about his shopping habits. He likes recognizable logos and prints, such as Burberry’s check pattern and Louis Vuitton’s monogram, and owns eye-catching items like Balenciaga’s NASA backpack and a pair of crystal-crusted Prada shoes. “I’ve never seen any crystal sparkle as hard as these shoes,” he said.

Not everyone in crypto is fabulously rich, and values can seemingly vanish in an instant if the market falls. But there is enough wealth in the industry, and enough interest in fashion, that Demirors believes brands should be doing more outreach to the crypto community, establishing relationships in the space and viewing key figures as influencers. After all, it’s a desirable customer base with an inclination toward conspicuous consumption.

“We work in magical internet money, so I think our propensity to spend large sums of money on random, useless things that are entertaining and largely impractical and not useful is much higher because we don’t treat our money in the same way that people in other industries do,” Demirors said.

Longstanding ties and dependence on Russian gas leave Berlin isolated in NATO push to contain Moscow

BERLIN—Officials from Washington to London and Warsaw are asking whether Germany’s heavy dependence on Russian gas, its tradition of pacifism and its longstanding political and business links with Moscow—all forged over several decades—are now making it an unreliable ally in the crisis in Ukraine.

In recent weeks, Germany has refused to join the U.S. and others in shipping defensive weapons to Ukraine and blocked North Atlantic Treaty Organization partners from giving Kyiv German weapons; its navy chief resigned after making pro-Russian remarks; and Chancellor Olaf Scholz delayed a meeting with President Biden in Washington.

Despite repeated exhortations from the White House, Mr. Scholz hasn’t publicly committed to freezing a controversial German-Russian gas pipeline should Moscow march into Ukraine. And now diplomats say Berlin has been asking for an exemption in future Western sanctions against Moscow that would allow it to keep buying gas from Russia.

Highlighting the extent of the mistrust among Germany’s allies, the U.K. avoided flying over German territory when it dispatched defensive weapons to Ukraine last week because London feared getting overflight permission would take too long, according to British officials.

As Russia has massed troops at its border with Ukraine during recent weeks, Germany, a vast country near the front line of the confrontation that other Europeans often look to for guidance, has appeared desperate to take a back seat.

German Foreign Minister Annalena Baerbock said Berlin’s role in the crisis was to provide financial and diplomatic support while other NATO members should offer military aid—a statement that raised concerns among partners about the alliance’s cohesion.

“It’s easy to justify one action or one policy, but when you take them all together, you get a narrative that Germany is not being a reliable partner…There is a sense that Germany is not only wavering, it’s actively taking steps to prevent help,” a senior U.S. diplomat said.

British Prime Minister Boris Johnson suggested Germany had to be talked into supporting severe sanctions aimed at deterring Russian incursion into Ukraine. Latvian Defense Minister Artis Pabriks even dismissed Germany’s stance as immoral, saying it was sowing division in Europe. And after Berlin sent 5,000 secondhand helmets to help Ukraine brace for an invasion, Kyiv Mayor Vitali Klitschko in an interview with the German tabloid Bild asked what the Germans would be sending next: “pillows?”

Most critics agree that Germany’s defense policy and its longstanding bond with Russia haven't changed but said that Berlin’s ambivalence was threatening its role in the Western alliance at a time of rising tension with Moscow.

“Nothing changed in Germany’s relationship to Russia, it’s only Putin’s threat of war that changed the context. All is fine when you are in love with a gangster as long as he is not killing people in your sight,” said Slawomir Debski, head of Poland’s largest think tank, the Polish Institute of International Affairs.

Berlin’s immobility in the face of Moscow’s escalations—its apparent yearning for something of a neutral or mediating position in the crisis—is the result of decisions made decades ago by successive governments that have now converged to tie the country’s hands.

The seeds of Germany’s dependence on Russia were planted 20 years ago under then-Chancellor Gerhard Schröder when the country decided to phase out nuclear energy over three decades. Angela Merkel, his successor, accelerated the process in 2011, and the country’s last nuclear-power plants are due to go offline this year, a decade ahead of schedule.

Under Mr. Schröder, Germany and Russia agreed to build Nord Stream, a submarine gas pipeline linking the two countries. After his electoral defeat in 2005, Mr. Schröder went on to work as chairman of the supervisory boards of both Nord Stream and the Russian state-controlled oil firm Rosneft. Nord Stream’s chief executive is a former officer of the Stasi, East Germany’s secret police.

As chancellor, Ms. Merkel teamed up with Russian President Vladimir Putin to counter widespread opposition to Nord Stream 2, a second pipe running alongside the first one, from allies who felt it would only increase Europe’s already high reliance on Russian gas. The pipeline, which is now completed and awaiting certification, would double the amount of direct Russian gas exports to Germany.

Ms. Merkel was central in bringing all European Union members to support U.S.-inspired sanctions on Moscow after its annexation of Crimea from Ukraine in 2014—making sure they wouldn’t impact German energy purchases. But in her last years in office, she drew closer to Mr. Putin, emphasizing the importance of trying to improve Europe’s relations with Russia.

In doing so, she was drawing on a diplomatic tradition established by Chancellor Willy Brandt in the late 1960s, who formulated a trade-centered Russia policy that later became known as Wandel durch Handel, or change through trade, and was supposed to make Russia more democratic by osmosis. The same doctrine was later applied by Ms. Merkel to China.

“Wandel durch Handel was supposed to change Russia, but ultimately, it changed Germany,” Mr. Debski said. “Germany is now a moral leader of the free world, but with opt-outs on Russia and China.”

John Kornblum, a former senior U.S. diplomat who served in various roles in Germany between 1964 and 2001 and has since remained in the country, says that the Biden administration, like others before it, is mistaken in thinking Germany can be talked into changing a policy that has been entrenched across the political spectrum for decades.

“Germany is grown up and is a responsible partner from its own perspective,” Mr. Kornblum said. “The problem is that this is not the view in much of Europe and the U.S.”

Today, Russia accounts for over half of Germany’s gas, and a quarter of oil imports, making Germany highly vulnerable in the current crisis, which happens to be unfolding in what is still early winter. It means the country—and Europe as a whole—would struggle to cope with the colder months if Russian gas supplies were to stop, said James Huckstepp of S&P Global Platts, which analyses energy and commodities markets. Germany could find itself scrambling for emergency shipments and even rationing the industrial use of gas, he said.

The global market doesn’t have enough capacity to make up any eventual loss of Russian gas by substituting it with liquefied natural gas, or LNG, from the U.S. or the Middle East, Mr. Huckstepp said.

As a consequence, Berlin has limited scope for action against Russia. The German government has tried to square the circle by insisting in talks with Western counterparts that any sanctions should allow a loophole for it to continue buying energy from Russia, according to diplomats familiar with the negotiations.

So called carve-outs would apply to sanctions against banks or transactions to allow for processing payments for Russian gas. German diplomats, along with others, also rejected the idea of freezing Russia out of the Swift payments system, a leading global intermediary between international banks that executes the bulk of financial transactions.

This mirrors Ms. Merkel’s insistence on completing the Nord Stream 2 pipe and shielding Russian gas exports from sanctions imposed after Moscow invaded Ukraine in 2014, said Josef Joffe, a professor at the Johns Hopkins School of Advanced International Studies in Washington.

“Germany is a power of peace that wants to stay out of harm’s way and refuses to act strategically by confronting Moscow…but the harsh laws of international politics demand that power must balance power,” Prof. Joffe said.

“A policy of goodness will fuel Putin’s ambitions.”

Meanwhile, Estonia, a small NATO member in the Baltic that shares a border with Russia, has been waiting for over a month for a German approval to dispatch 10 howitzer guns to Ukraine. The Soviet-made cannons belonged to East Germany, and after German reunification in the 1990s were sent to Finland, which eventually sold them to Estonia.

Kristo Enn Vaga, an Estonian Defense Ministry official, said Germany was delaying a time-critical decision while Estonia was trying to help Ukraine because it knew it could be “next on the Russian bear’s menu.”

German officials have said that the moral debt of Nazi atrocities committed in the former Soviet Union prevents them from supplying weapons that could be used against Russia.

“To say, ‘We owe this massive geostrategic gas infrastructure to Russia despite opposition from our partners,’ is the most bizarre justification of mercantile policies,” said Toomas Hendrik Ilves, former president of Estonia.

Industry participants see ‘no sign’ US equities wobble has caused exodus from derivatives bets

Investors are turning to derivatives to make supercharged bets on the US equities market, highlighting how the pandemic has left a lasting mark on Wall Street even as the rally in speculative shares fizzles.

Trading volumes in options, tools that let investors bet on price movements of shares without holding them, have jumped this year, in an acceleration of a trend that began in the early days of the pandemic.

Turnover at the main US equity derivatives clearing house, OCC, hit records on two consecutive days last month, exceeding 63mn contracts on both occasions. The average daily volume in January was 44.9mn contracts, compared with 39.4mn last year.

The sharp rise underscores how the US options market has boomed over the past two years, following a surge in interest from smaller traders who deal in more diminutive lot sizes. OCC last year handled 9.9bn options, up almost a third on the previous year and double 2019’s total, which was also a record.

“The options market has meaningfully changed in the past two years,” said Thomas Peterffy, founder and chair of Interactive Brokers, a retail brokerage that handles a tenth of the US options market volume.

Options volumes have doubled on the brokerage since the start of 2020. Easy-to-use platforms with no-fee investments have helped fuel the rise in options trading, Peterffy said.

High stock prices, which soared to record peaks during the pandemic in a rally spurred in part by a historic barrage of central bank stimulus, have also made options more attractive for investors looking to make amped up trades with less cash.

Options give traders the right to buy or sell shares at a fixed price by a pre-determined expiration date. The derivatives are often considered higher risk because they allow traders to make potential big bets with a small outlay. If an option expires before the shares either rise or fall beyond the “strike” price, the trader loses out on the premium they paid to buy the options contracts.

Investors have sought out options on individual tech stocks such as Tesla, Apple, Facebook and Nvidia, as well as tech-related indices such as CME’s Micro E-mini Nasdaq-100 index futures, which caters to retail customers.

Trading in “meme stocks” — favoured by investors who strategise on Reddit message boards — has slowed sharply, and many speculative shares that benefited from pandemic lockdowns have tumbled in recent weeks. The declines mark a sharp reversal from a year ago, when companies such as GameStop, and vehicles such as Cathie Wood’s Ark innovation fund, were in vogue.

But when it comes to options trading, “[w]e have seen no sign of things slowing down”, said Henry Schwartz, head of product intelligence at Cboe Global Markets, one of the US’s largest derivatives exchanges.

“The concept of viewing a call option particularly as [a] lotto ticket with possible infinite payout has become very attractive, and when you get a lot of activity . . . it just snowballs,” he said, referring to a type of option that allows traders to bet on share price rises.

Demand for options among retail investors, especially in the expectation that underlying prices would rise, has encouraged more professional traders to sell the contracts at a mark-up.

“This used to happen in a few dozen stocks a day, there were little pockets of speculation in the market,” Schwartz said. “Now this repricing of the upside risk is happening for hundreds of stocks every day.”

The duration of options contracts has also fundamentally shifted as more volatile “yolo” (“you only live once”) trades have come to define much of the market.

The majority of options trades historically had expirations between 15 and 30 days. But this has now flipped, and flows into short-dated options are the dominant force in the market, with contracts expiring in just two to three days, according to Cboe.

In a sign of how options trading is rippling across markets, Bank of America last month warned clients to “ignore the options market at their own risk”. The Wall Street bank noted stocks with high participation from retail traders, and which are the subject of significant options activity, are geared towards big surges — something that can inflict pain on those betting against them.

“The interaction of retail flows and options activity remains a force to be reckoned with,” BofA said.