The U.S. Securities and Exchange Commission is scrutinizing NFT creators, and the marketplaces where they trade, for regulatory violations. As per a recent report from Bloomberg, the apex regulatory agency is inspecting whether certain non-fungible tokens that qualify as securities should fall under the regulatory ambit or not. They’re also trying to determine if some of the assets “run afoul of the agency’s rules.”
As per Bloomberg’s unnamed sources, the SEC has not yet publicly disclosed the investigation details. However, the agency has reportedly sent subpoenas related to the investigation and is keenly interested in information about fractional NFTs that aid multiple people to HODL and trade a share of an asset. Bloomberg noted,
“As part of its review, the SEC is seeking information on so-called fractional NFTs, which involve breaking down the assets into units that can be easily bought and sold.”
NFTs – A new security variant?
Well, at this stage, regulators haven’t really been able to draw the line to distinguish between what is security and what isn’t. Even though the SEC has argued that a host of tokens—including XRP—fall under its purview, people from the community contend that regulations meant to police the equity markets shouldn’t apply to virtual currencies.
However, it should be noted that information requests from the regulator don’t always lead to enforcement actions. The SEC, on its part, might just be doing a regular health check-up of the assets belonging to this sector.
Having said that, things cannot be taken lightly. It shouldn’t be forgotten that the agency went out hard and fast on ICOs during their boom period in 2017-18. Back then, two of the most prominent ICOs—Telegram and EOS—raised billions in crypto via this method. Nevertheless, both companies faced enforcement action from the SEC. In fact, Telegram was ultimately forced to abandon its crypto prospects altogether.
Strictly going by Bloomberg’s report, the SEC is concerned that cryptocurrency projects are merely finding new variations of unregistered securities—this time with non-fungible tokens. NFTs are, as such, blockchain-based tokens that carry along with them the right to sell or trade an accompanying asset like a digital collectible or artwork.
The NFT marketplace had, however, been warned earlier. Hester Peirce, aka “Crypto Mom,” said in March 2021 that NFTs might “raise the same kinds of questions that ICOs have raised.” She went on to apprise investors that fractionalized NFTs could be considered unregistered securities.