Is NFT worth buying if it can’t be resold?

We mentioned in the previous public account article that due to the general differences between domestic NFT and NFT products in other countries, as there is no secondary market for NFT transactions in China, products between alliance chains cannot be circulated.

So, do NFT products that cannot be resold still have investment value? Today, Sister Sa’s legal team will answer the questions that this partner is concerned about.

Current industry restrictions and their reasons

In general, the current major domestic NFT platforms have imposed two-sided restrictions on the circulation of NFT products:

First, the domestic NFT adopts a limited sales model and the quantity is limited, so as to increase the scarcity of products and create a scarcity atmosphere. Second, most NFT platforms have not opened a secondary trading market and cannot be resold.

Leaving aside limited sales for the time being, the main reason for the restrictions on secondary market transactions is a series of administrative regulations promulgated in recent years. In particular, the “Notice on Further Preventing and Disposing of the Risk of Hype in Virtual Currency Transactions” (hereinafter referred to as the 924 Notice) jointly issued by ten ministries and commissions this year defines all financial activities involving virtual currencies as ” illegal financial activities .” On the same day that the 924 notice was issued, the National Development and Reform Commission and other 11 departments issued the “Notice on Renovating Virtual Currency “Mining” Activities”, requesting to promote the rectification of virtual currency “mining” activities, and banning new additions and clearing stocks.

So far, all activities involving virtual currency in my country, whether it is mining, currency issuance, investment transactions, exchange, etc., will be severely cracked down by the regulatory authorities. Therefore, although NFT is completely different from virtual currency, it is also another manifestation of the development process of blockchain technology (even some NFT lots must be purchased with virtual currency, which makes NFT to a certain extent compatible with virtual currency. It is not difficult to understand the cautious attitude of the domestic NFT platform on this issue, and it also has the risk of speculation.

It is a good thing not to open the secondary market for the time being

The purpose of temporarily not opening the secondary market is to limit the hype of NFT products and their transformation into financial products, but it does not mean that they lose investment value . The so-called financial products refer to various non-physical assets that have economic value and can be publicly traded or cashed. Financial products have two characteristics: first, the price of the product depends on the size of the market’s capital, rather than its own value; second, people buy the product mainly for resale. The tolerance of laws and regulatory agencies for ordinary commodities and financial products is completely different. There are few countries in the world that do not strictly regulate financial products. Therefore, we believe that it is a good thing not to open the secondary market for the time being, which is conducive to the long-term survival and development of the NFT industry in China.

Take virtual currency as an example: Initially, in 2013, the People’s Bank of China and other five ministries issued the “Notice on Preventing Bitcoin Risks”, which pointed out that “in terms of nature, Bitcoin should be a specific virtual commodity, which is not equivalent to currency. The legal status of Bitcoin cannot and should not be used as currency in the market.” It can be seen that Bitcoin, as a representative of digital currency, was originally regarded as a virtual commodity in China’s laws. The influx of funds has led to the continuous strengthening of the financial properties of Bitcoin, and finally financialization. The disorderly hype has led to the fate of all virtual currencies being banned by the 924 notice.

Therefore, my country’s current NFT market does not open secondary transactions, and for the time being, it is not allowed to transfer gifts (the general industry limit is 180 days). The channels for speculating NFT products are strictly restricted, and the influx of funds from all parties is strictly controlled. It can be said that at this stage, NFT in my country is only an electronic voucher for recording the content of digital asset rights and historical transaction flow information. Such weak financial attributes increase the possibility of legal compliance of NFT products in the future.

Legal compliance, openness is expected

Everyone is more concerned about whether major companies will gradually open up NFT trading and circulation functions in the future. Sister Sa’s legal team believes that this is possible, but the premise is legal compliance.

According to the provisions of Document No. 38 of 2011 “Decision of the State Council on the Clean-up and Rectification of Various Trading Places to Practically Prevent Financial Risks” and Document No. 37 of 2012 “Implementation Opinions of the General Office of the State Council on the Clean-up and Rectification of Various Trading Places”, if you want to To open NFT trading on a formal exchange, the exchange must be established with the approval of the provincial people’s government, or the State Council or the financial management department of the State Council must be approved. In reality, the trading venues of NFT products often do not have such approvals, so their legal circulation will of course be restricted. In fact, these two approvals are extremely difficult to obtain.

Although it is very difficult, we believe that as long as NFTs are not dissimilated into financial products, and through regular sales channels, they can be transferred or sold. Under this premise, it is not impossible for the major NFT platforms to open transactions and circulation. From this perspective, NFT still has considerable investment value.

Write at the end

NFT is a new product and a new field. Regarding emerging things, public power regulators often maintain a cautious attitude . If NFTs want to develop healthily in China, they must stay away from the trap of financialization. As mentioned above, the weaker the financial attribute, the easier it is to comply with laws and regulations. How to make the definancialized NFT obtain the approval of regulatory agencies while maintaining its own value is the key to opening the secondary trading market.

Risk and return are proportional to the general law of human social and economic activities, but in the field of NFT, we still recommend: first look at investment risk, then look at investment value.

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