The SEC Is Investigating The NFT Market For Possible Unlawful Crypto Token Offers.

The Securities and Exchange Commission is investigating the creators of nonfungible tokens as well as the crypto exchanges where they trade to see whether some of the assets violate the agency’s guidelines.

According to the persons familiar with the source, one focus of the investigation is whether some NFTs, digital assets that may be used to represent ownership of items like paintings or sports memorabilia, are being used to earn money in the same way that traditional securities are.

Attorneys in the SEC’s enforcement office have delivered subpoenas requesting information concerning token sales during the previous several months.

The investigation is the SEC’s latest endeavor, led by Chair Gary Gensler, to guarantee that the cryptocurrency market upholds wit its standards. The commission and state authorities fined BlockFi, a prominent virtual-currency exchange, a record $100 million in February for failing to register products that offer clients hefty interest rates to lend out their digital tokens.

The SEC is gathering data on so-called fractional NFTs, which entail breaking down assets into parts that can be readily bought and sold, according to the sources, who requested not to be identified because the inquiry has not been made public.

The SEC did not respond to a request for comment. Requests for information from the regulator may not always result in enforcement proceedings.

The NFT market surged last year, attracting attention for multimillion-dollar purchases and buy-ins from celebrities, some of whom are shown in the assets. In addition to representing real treasures, supporters of the tokens frequently emphasize their value as digital credentials of authenticity that cannot be duplicated.

According to Chainalysis statistics, around $44 billion in crypto was delivered to smart contracts on the Ethereum blockchain linked to NFTs in 2021, up from $106 million the previous year. As the industry has grown, several NFT platforms have made efforts to exclude projects that may put them in the eyes of authorities, such as those that give royalties or entail raising cash for a corporation.

A key legal question is whether digital assets, such as NFTs, are securities and thus subject to the same rules as stocks. Although the SEC has said that many tokens are under its jurisdiction, some cryptocurrency aficionados contend that laws designed to monitor the equities markets should not also apply to virtual currencies.

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Patrick

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