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Wine investment in tokens – is the digital return a treat?

How good are the returns when buying tokens for fine wine investments in America, England and worldwide? Only those who find the pearls in the abundance of wines on offer will be rewarded with a return in the end. Investors should therefore also pay attention to the ancillary costs and a high rating by wine experts.

“It’s a pity you can’t caress wine,” German writer and journalist Kurt Tucholsky once said. The enjoyment of a fine drop will have led him to make this statement. And he is not alone in this today. Wine is also more popular than ever in Amerika, England and around the world. According to statistics from the International Organization of Vine and Wine (OIV), the amount of wine produced in the USA is around 20-30 million hectoliters per year.

Solid increases in the value of wine investments

In addition to enjoyment, however, more and more people are turning to wine as an investment. Then the pleasure is called Fine Wine Investment and has above all rare and expensive wines in the eye. Because these promise prospect on a solid increase in value. In the past years quite successfully. According to the current annual report of the London wine exchange Liv-Ex, wine investments have proven to be very stable in the Corona year 2020. They were less volatile than the stock markets and were able to record a plus of five percent at the end of the year.

Tokens facilitate market access

Two factors favor the development and stability of wine as an investment. Only about one percent of the wines produced worldwide are suitable as an investment, according to expert estimates. At the same time, the demand for safe and profitable tangible assets is growing. This makes the market of Fine Wine Investments interesting for many investors in America, England and worldwide. Without expert knowledge and access to the relevant markets, investors can hardly profit from the advantages. In addition, wine investments are considered a less liquid form of investment. Those who want to have their invested capital quickly available at any time are not in good hands with classic fine wine investments. Digital wine investments via tokenization and blockchain can change that. Above all, private investors are also given new investment opportunities as a result.

Blockchain enables fine wine investment

The basis for this is blockchain technology, which can be used to break down securitized property rights to tangible assets into many small parts. This makes it possible to become a part owner of a valuable bottle of wine. And without having to store it in the cellar or ever having to look at it. The share in a tokenized bottle of wine or a tokenized wine portfolio is a so-called Non-Fungible Token or NFT for short, which is used to prove ownership rights. These digital proofs of ownership can be stored in the wallet, the digital depository. NFTs denote a unique asset that cannot be reproduced. This asset does not have to be digital, but uniquely identifiable – such as a special bottle of wine. Thus, a wine token is always associated with a physically existing portfolio of uniquely identifiable wines.

Tokenized wine with vineyards in the background.
Investing in wine can be rewarding with tokenization.

Swiss law creates legal framework

In Switzerland, Fine Wine Capital AG has gone ahead and tokenized a Château Latour in a first step together with Sygnum AG. It was the first wine investment in line with the new Swiss DLT (distributed ledger technology) law. This created a legally binding framework so that property rights can be managed and transferred digitally. This is required for tokenizing tangible assets. Similar to Finexity, the first wine tokens at Sygnum were sold within a short time.

Selection decides the return on investment

Tokenizing wine has opened up a market segment for investors that was previously only available to wealthy customers. Thus, one can expand and diversify one’s own wealth planning by this component even with a small financial investment. But tangible assets such as wines have their own special features. These are still valid when the investment volume is spread over many shoulders.

The most important aspects when investing in tokenized wine include:

  • Only those who can find the pearls from the abundance of offered wines will be rewarded with a return in the end. This is hardly possible for the normal private investor. Therefore, they should pay attention to the criteria according to which a token provider selects its wines.
  • Finexity, for example, has formed a network of experienced wine connoisseurs and experts whose judgment is incorporated into the selection. Of particular importance, however, is the assessment of internationally recognized wine critics such as Robert Parker and Antonio Galloni. Their judgment can determine the rise and fall of a wine and thus has a direct influence on the return. For fine wine investment, wines that have a score of at least 90 to 95 (excellent wine), but better a score of 96 to 100 (exceptional wine) are of particular interest.
  • However, investors in America, England and around the world should also pay attention to the tradition of a wine brand. Wineries that consistently produce high-quality wines enjoy higher appreciation when they are sold later than one-time outliers.
  • Once the selection has been made and the wines are in the possession of the issuer, they must be stored professionally on a permanent basis. Relevant factors here are, for example, the room temperature (10° to 12°) and the humidity content of the air (65% to 85%). The reason is simple: even if wine investments are not intended for consumption, they must still remain drinkable. Only then is their value assured. Wines that are recognizably poorly stored can lose their value completely – which means that the capital invested is also gone.
  • This elaborate storage causes costs. Investors should therefore also pay attention to the ancillary costs associated with fine wine investment. In this way, risks and mistakes can be avoided when investing money

Consider risks: Theft and counterfeiting

Of equal importance are the aspects of theft protection and counterfeit protection. Above all, ensuring the authenticity of wine bottles has now become a major challenge for wineries and investors alike. For with the high returns, more and more counterfeit wines have also come onto the market. One of the most famous fakes is a bottle of Château Lafite, allegedly from 1787 and from the wine cellar of the US president Thomas Jefferson. In fact, it was a bottling from the 1960s. There were more bottles of other valuable wines in circulation than were ever bottled. Issuers of wine tokens therefore secure themselves today via seamless profiles and certificates of authenticity.

Digital marketplaces create transparency and flexibility

Lucrative investments in selected tangible assets such as art, vintage cars or wine were previously difficult to access. Accordingly, they were only offered to wealthy customers who could do without their invested capital for a longer period of time. This is changing with the tokenization of wines. The barriers to market entry have been lowered, especially because investment is possible for as little as a few hundred euros. However, a significant advantage is that the tokens are tradable. As with art tokens, this creates great transparency, trust and security.

Finexity has created an over-the-counter marketplace for tokenized assets for this purpose. Investors can buy and sell tokens with just a few clicks after registering. Additional information about the tokens on offer and their performance makes it easy for investors to make their investment decision. Sygnum Bank works in a very similar way with its Desygnate marketplace, which also offers the greatest possible legal security through its orientation on the new DLT law.

FAQ – Frequently asked questions

How safe is an investment in wine tokens?

As with other investments, profits are not certain. The forecast performance may not materialize. As a result, the return may be significantly lower and there may even be a risk of total loss. Technical security is just as important. Therefore, you have to keep the digital keys safe. Use very secure passwords for this and do not forget them. If access is no longer possible, the loss of the token is irretrievable.
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How should token investments in wine be legally assessed?

Investments in wine tokens are legally still a kind of bond. This means that the issuer is liable for interest payments, for example, if they have been agreed upon. However, he can also suspend them, as well as the redemption at the agreed end date. This is usually accompanied by the insolvency of the issuer. In this case, investors get their invested capital back only if other creditors have been served beforehand. Such a situation can lead to a total loss of the investment.

How long do I have to stay invested in wine tokens?

An investment in high-quality wines aims above all at an increase in value. The wine tokens available so far are provided with a predicted expiration date. This determines when the wines are to be sold. Investors should allow for periods of 10 to 15 years for this. In the meantime, the investors profit from the presumably generated surpluses. The tokens can be sold at any time via the digital marketplaces, provided that a buyer can be found.

What are the fees and costs involved in wine token investing?

One advantage of tokenized wine investments is the significantly lower costs. As a rule, sales platforms only charge low management fees. There may still be costs for the wallet for the investor. Providers like Finexity do not charge any fees for the storage of the tokens.

First wine tokens on the market

With the increasing popularity of NTFs over the past twelve months, high-value wines have also become an object of desire. In March, Hamburg-based fintech Finexity AG launched the first European digital fine wine investment. The offer included seven bottles from the Domaine de la Romanée-Conti winery in Burgundy. With incidental costs, these were purchased for just under 42,000 euros and divided into 43,500 tokens of 1 euro each. Investors had to enter with at least 500 tokens. Five more Fine Wine investment projects have since been added. Investors can invest in the French wineries Domaine de la Romanée-Conti, Château Lafite Rothschild, Le Pin, the Californian wine grower Opus One, and the champagne house Salon Le Mesnil.

Thomas Feldhaus

Economic Journalist | Study of Economics.
Main focus: Change processes | Digitalization | Corporate management | Sustainable development

Thomas Feldhaus

Wirtschaftsjournalist | Studium der Wirtschaftswissenschaften
Schwerpunkte: Change-Prozesse | Digitalisierung | Unternehmensführung | Nachhaltige Entwicklung