Core view
Writing background of the report
In 2021, NFT broke the circle from the field of encryption to the mainstream public. In addition to the field of culture and art, many mainstream institutions in the financial field, including qiaoshui fund, Sequoia Capital and visa, also pay attention to NFT. According to a number of third-party data institutions, we estimate that the NFT market on the overseas mainstream public chain has exceeded US $20 billion, the number of users and projects has reached one million, the volume is considerable, and shows the characteristics of high growth and centralized categories.
In the face of the popularity of NFT, the mainstream population has great differences. Skeptics worry about hype and regulatory issues, or think NFT is just a game of beating drums and passing flowers; The supporters of NFT, such as artists and brands, actively embrace the trend. Although more people are interested, they still doubt the real value of NFT and think that NFT is only a minority hobby in cryptocurrency or art circles.
This report attempts to explore: who are the participants in the NFT market? Put aside speculation, where is the value of NFT and whether it is sustainable?
Main findings of the report
How to explain the outbreak of NFT market in 2021: We observed five factors: the prosperity of encryption ecology, the drainage of media volume, the expansion of project supply, the enrichment of application scenarios and the improvement of infrastructure.
Observe the price, supply and demand of the current NFT market
1) from the perspective of price, market division: NFT can be divided into three categories: Art / blue chip / long tail, corresponding to more than one million, thousands to hundreds of thousands, hundreds of dollars and less (the average and median price in 2021 is about hundreds of dollars). Among them, the art project has promoted the breaking circle of NFT; Blue chip projects are the mainstay of the current market, with a large proportion of “institutional” buyers and value investors; The long tail market gives grassroots creative teams and ordinary investors the opportunity to participate in the NFT market, but the current investment risk is high.
2) summarize the valuation system of NFT Market: as far as the project as a whole, it mainly includes internal and external factors: ① the project itself: artistry, practicability, marketing, operation, liquidity, creator background, social added value, etc; ② External factors: Supervision, security, public opinion environment, user experience of NFT Ecology (entry threshold), etc. The relative value of different NFTs in the project depends more on scarcity (different NFTs in the same project have different characteristics and correspond to different scarcity rankings).
3) looking at participants’ motivation from both sides of supply and demand: ① on the demand side, we found that NFT buyers are no longer limited to the “coin circle”, and the purchase behavior is not only based on unsustainable motives such as showing off and speculation. In 2021, the NFT market achieved a preliminary breakthrough from the encryption group to the mainstream group, opening a more sustainable market for entertainment, social networking, interest and so on. For example, the investors of art and blue chip NFT include business owners, high net worth groups such as stars and brand enterprises. For projects with relatively low entry threshold, sports NFT, for example, includes many ordinary collection enthusiasts and interest buyers (more than 40%). ② On the supply side, we see the continuous improvement of infrastructure and the good trend of cooperation between channels and IP, encryption background and non encryption background. On the one hand, it comes from the driving force of continuous breakthrough in the field of encryption. On the other hand, it also reflects the demands of IP parties to improve the pattern of benefit distribution, obtain incremental income at a lower marginal cost, expand the boundary of fan economy and attract traffic.
On the essence, value and potential of NFT
1) essence of NFT: NFT is the proof of right on the asset chain. From the physical level, NFT is just a series of machine generated data. It is not a work of art, avatar or star card itself, but a method to track the ownership of assets by chaining assets. Because the underlying technology endows it with verifiable, tamper proof and other attributes, NFT can improve the traditional mode of “paper / electronic certificate confirmation + centralized institutional supervision”.
2) value of NFT: the value of NFT and NFT trading platform can only be realized through the enabling industry. The concept of NFT has sprouted as early as the last century, but it was not until 2021 that the value of NFT was truly recognized and concerned by the mainstream population through the empowerment of art, sports and other fields. Based on the combing of the existing use cases, we believe that the value of NFT itself includes ① the storage medium of asset proof, ② the dissemination carrier of digital content, ③ the new way of content realization, and ④ creating digital scarcity for assets; The value of NFT platform includes ① improving asset liquidity (Globalization and cross platform trading), ② providing point-to-point trading market for digital content, ③ providing valuation basis for long tail content, and ④ increasing flow value for brand.
3) growth potential of NFT: two scenarios. We mentioned in the first report of metauniverse series that digital assets are one of the infrastructure of metauniverse. From a long-term and optimistic perspective, if metauniverse can be gradually realized, NFT is expected to penetrate into various fields, including culture and art, clothing fashion, retail, real estate and so on; If viewed from a relatively prudent and pessimistic point of view, if the development of the relevant infrastructure of Yuan universe and NFT is not as fast as expected, then NFT may experience the process of going froth.
Investment suggestion: we believe that despite the speculation, after the rapid development in 2021, NFT has initially broken the circle among the mainstream population and promoted its application in many industries, showing great development potential. Although the operation mechanism of China’s NFT related digital collection market and property rights trading market is different from that of Europe and the United States, the underlying logic of enabling the industry with the help of blockchain technology is interlinked, and we believe that the cultural media industry will benefit first. Based on this, we give the industry a “recommendation” rating. It is suggested to focus on two types of related companies: ① digital assets and property rights trading platform, including Visual China Group Co.Ltd(000681) (own rich visual content + self built digital collection platform), Three’S Company Media Group Co.Ltd(605168) (it is proposed to build a digital cultural and creative products trading platform with Beijing Cultural Property Rights Trading Center Co., Ltd.) Chengdu B-Ray Media Co.Ltd(600880) (its Chengdu Cultural Property Exchange released the first digital cultural property trading platform in China); ② The pan IP domain includes the pan IP domain, including the pan IP domain, which includes the pan IP domain, including Hongda Xingye Co.Ltd(002002) Shanghai Yaoji Technology Co.Ltd(002605) inaddition, it is suggested to pay attention to Tencent Holdings (Zhixin chain, magic core) Alibaba (ant chain, whale probe, Alibaba auction, ticket panning), baidu (super chain, xiruyuan universe), JD (Zhizhen chain, Lingxi digital collection platform), Netease (Netease planet digital collection platform), TME (Tencent music digital collection platform), etc.
Risk tips: the ownership of NFT is separated from the intellectual property rights of NFT directed content, transaction security risk, regulatory risk, responsibility risk of platform subject, risk that the development of relevant technology is less than expected, public opinion risk, market style switching risk, companies outside China are not fully comparable, and relevant data and materials are for reference only.
