After XRP, the U.S. securities regulator goes after the booming NFT sector

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Key Takeaways

• The US Securities and Exchange Commission is going after the NFT industry next.
• According to reports, the SEC is probing NFT creators and crypto exchanges.
• The agency may determine some NFTs are securities.

YEREVAN (CoinChapter.com) – The U.S. Securities and Exchange Commission (SEC) launched a probe into the nonfungible token (NFT) sector to determine whether or not they have flaunted any of the securities rules.

SEC’s attorneys have reportedly served creators and trading platforms with subpoenas to help collect information about token offerings.  

According to Bloomberg, the latest undisclosed probe seeks details on “fractional NFTs,” which involves breaking down the asset into units that investors can easily buy and sell. However, the portal quoted an anonymous source, claiming the agency has still not made an official announcement about the probe.

Recommended: Does the NFT industry pose a threat to the global art market — experts weigh in

The SEC uses the Howey Test to determine whether or not a financial asset is a security. So, for example, if investors part away with their money to invest in an asset to make a profit, the SEC will determine it as a security.

Crackdown fears

SEC’s move to investigate NFTs came amid speculations they may end classifying some as securities. If true, the decision would largely bring the ’emerging’ sector under the agency’s ambit, resulting in possible stricter regulations.

The agency’s chairman, Gary Gensler, has been notorious for leading a crusade against cryptocurrencies and digital assets. XRP, the native token of Ripple Ledger, has been facing his brunt in a much-covered court case.

In Dec. 2020, SEC filed a lawsuit against Ripple Labs and two of its executives, accusing them of illegally raising $1.30 billion via the sales of XRP, the native token of their namesake Ripple ledger.  

A possible crackdown on NFTs might impact the markets. Besides sending prices diving, it may also deter possible investors from hoarding digital collectibles.

However, the recent development does not come as a surprise to industry insiders. Last December, in an interview with CoinDesk TV, SEC Commissioner Hester Peirce warned that the SEC might soon turn its attention to NFTs.

“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,”  

Pierce said.

The “Crypto Mom” further claimed the market would see an increasing fractionalization of NFTs in 2022 because they are valuable assets.

Depending on the findings of the SEC, Gansler and his team may pull the breaks on the booming NFT sector. Should that happen, we might, after all, remember 2022 as the year of NFT regulations.

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