The United States’ Securities and Exchange Commission (SEC) is investigating the non-fungible tokens (NFTs) market to determine if some of these NFTs can be categorized as securities, according to a report by Bloomberg.
The regulator is particularly focused on fractional NFTs, pieces of which can be sold separately to multiple investors. These units can be easily bought and sold in the secondary markets for earning profits.
In addition, the report outlined that the SEC attorneys have been sending subpoenas to NFT creators and various crypto exchanges requesting more information for months now. However, the regulator did not confirm anything officially.
NFTs give ownership of the piece of art to the buyer. It is often touted as the digital certification of authenticity that is stamped on a blockchain and cannot be altered, well ideally.
An Exploding Market
Demand in the NFTs market has exploded over the past couple of years. According to Chainalysis, around $44 billion worth of cryptocurrencies were sent to Ethereum smart contracts linked to NFTs in 2021, compared with $106 million in the previous year.
Now, artists, athletes and celebrities from almost each and every field are now launching NFTs, raising the demand in the market even higher.
The SEC jurisdiction is only limited to the securities market in the United States. To take any action against the NFTs, it first needs to establish that NFTs, or at least a particular category of it, are securities. It usually uses the Howey test, from a 1946 U.S. Supreme Court decision, to decide if an asset qualifies as securities.
Hester Peirce, SEC’s crypto-friendly commissioner, raised concerns over the booming NFTs market, saying: “Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction… People need to be thinking about potential places where NFTs might run into the securities regulatory regime.”
