1. What are the attributes and values of NFT? NFT is a non-standard certificate of artwork / copyright / digital artwork, which is a string of computer code. The purchase of NFT cannot obtain the physical object itself, but has the network virtual property right of artwork. China’s NFT transactions restrict secondary circulation and NFT’s collection rights (without the copyright and ownership of works of Art). At present, it can only make limited transfer within the scope of platform rules. China’s NFT core industry chain links include content side – NFT issuing side – NFT trading side – bottom technology side. Most of the industrial layout of China’s NFT platform only stays at the issuing side (primary market) and bottom technology side. Whale detection and magic core of Alibaba and Tencent and Visual China Group Co.Ltd(000681) ‘s “meta vision” belong to one-time sales biased towards the issuing side. The issuance of China’s blockchain is dominated by Alliance chain. Because China does not have a secondary trading platform in a strict sense, NFT’s collection attribute is greater than its financial attribute in China.
2. Why hasn’t NFT been fully released? The value of NFT trading platform is the same as that of Taobao platform to the e-commerce industry chain. On the one hand, it can both TOC and tob. On the other hand, if it can be traded and circulated again, the industry value will be truly released. At present, the reason why NFT secondary trading is not really liberalized is that NFT has not been truly qualitative. The policy side mainly has the following regulatory constraints: 1) the risk of virtual currency speculation: there is no clear law in China to clarify whether NFT is a securities; 2) Problems of secondary trading: according to the guidelines of GF [2012] No. 37 and GF [2011] No. 38, the state has strictly limited the exchange platform and made large-scale rectification; 3) In addition to the financial attribute, the issues related to the confirmation and copyright protection of NFT are not clear. The development path of NFT in China is more inclined to a monetization exploration. If NFT is recognized as a financial product, it must have corresponding exchange transactions and hold relevant financial licenses. On this basis, the holders of products cannot exceed 200, t + 5 transactions, and standardized contract transactions are not allowed. The establishment of new exchanges in China is more difficult and requires the approval of the State Council or the financial management department of the State Council. The issuance of new financial licenses is more difficult for traditional financial institutions.
3. What is the prospect and space of NFT from overseas to China? The global market is developing rapidly. In 2021, the global NFT trading volume exceeded US $17.6 billion, 21 times that of 2020. Opensea, the leader of overseas comprehensive NFT trading platform, led the whole industry. As of March 22, the market share accounted for about 50%, and the trading volume in February was US $4.9 billion, 50 times that of the same period last year. The trading mechanism of opensea is perfect, the nature of NFT is relatively clear, and secondary trading can be carried out: the platform is large enough, cross chain, low commission and casting free. Although overseas NFTs are subject to regulatory constraints due to their virtual attributes, their essence is still recognized as securities. We believe that compared with opensea, China’s NFT platform is more centralized, smaller and controllable. Under the guidance of clarifying NFT attributes and the government, China is expected to gradually explore a more compliant NFT platform:
1) advantages of all licenses of the cultural exchange: 1) the establishment of the cultural exchange needs the approval of the State Council and the province, and most of the major shareholders are local state-owned assets; 2) The cultural property rights trading and related investment and financing work of the cultural exchange adopts the way of government guidance and market-oriented operation; 3) The core guidance document of the cultural exchange is Zhong Xuan Fa [2011] No. 49, which has a clear underlying policy framework for the trading platform; 4) At present, cultural exchanges across the country have made relevant layout or exploration on digital cultural property rights trading. In addition, the digital RMB was officially launched on January 4, 2022.
2) digital RMB lays the foundation for the circulation and transaction of Digital Collections: on the one hand, digital RMB is conducive to ensuring the capital security of NFT transactions and preventing money laundering and illegal fund-raising; On the other hand, the top-level design of homogenized digital RMB will give relevant policy guidance to non homogenized NFT industry.
3) how big is the NFT space if it is released? If the NFT secondary market is liberalized, we estimate that the NFT market scale in China will be about 29.8 billion in 2026 (29.5 billion estimated by toubao Research Institute, a three-party consulting organization). If China does not liberalize the secondary trading market, the long-term forecast is that the NFT market scale in China will be about 6 billion in 2026, about 1 / 5 of that after the liberalization. We expect that the long-term NFT market scale in 2026 will be four times the scale difference before and after the liberalization of the secondary market.
Investment suggestions: 1) the value of NFT trading platform is equivalent to that of Taobao to e-commerce. The liberalization of NFT market and secondary trading is the sign of the real opening of industry market space. We believe that the liberalization of secondary transactions in the NFT market needs to be carried out under the national financial supervision. The cooperation relying on the platform of the cultural exchange deserves attention, especially the exploration of local state-owned media listed companies and head Internet companies in the NFT market. On the one hand, media companies with local state-owned assets background participate in the platform of local cultural exchange. On the other hand, Tencent Ali, a leading Internet manufacturer, is making an in-depth exploration of the whole industrial chain. At present, the Internet platform still stays in the layout of the primary market at the issuing end of NFT. 2) NFT has not been truly qualitative in China. The collection value is greater than the financial attribute. The exploration of non monetized copyright confirmation is a clear direction currently under way. It is suggested to pay attention to the layout of copyright related companies in the underlying technology field of NFT. 3) The liberalization of NFT (Digital Collection) market is expected to revitalize the sleeping cultural assets, digital copyright and other contents, so as to drive the performance of the whole sector. It is suggested to grasp the investment opportunities from two dimensions: 1) the related targets Visual China Group Co.Ltd(000681) , Three’S Company Media Group Co.Ltd(605168) , Zhewen Interactive Group Co.Ltd(600986) , etc. that have been laid out in NFT / cultural exchange and other related fields; 2) At present, the overall valuation of the media content sector is at a historically low level. NFT is expected to activate the realizable value of head IP resources and improve its commercialization ability. It is recommended that the content leaders in such subdivided fields as Mango Excellent Media Co.Ltd(300413) , Wuhu 37 Interactive Entertainment Network Technology Group Co.Ltd(002555) , Beijing Enlight Media Co.Ltd(300251) , Zhejiang Huace Film And Tv Co.Ltd(300133) , Shanghai Yaoji Technology Co.Ltd(002605) at the bottom of the valuation.
Risk warning: policy risk uncertainty; NFT speculative risk; China’s blockchain technology is not yet mature; Copyright protection risks.
