SEC Begins the Investigation of “Fractional NFTs” Suspected To Be Illegal

Key Insights:

• SEC’s latest step in crypto regulation is targeted at NFTs.
• Subpoenas demanding information about the same have already been sent out.
• The Commission is also analyzing whether NFTs can be deemed as securities or not. 

In a report from Bloomberg, it has been revealed that the Securities and Exchange Commission (SEC) is now investigating NFTs. There are two purposes as to why the regulatory body is doing this.

The first is to determine what asset class NFTs fall in. Second to expose and eradicate any possible foul operations conducted through these NFTs.

SEC vs. NFTs Now

Gary Gensler has been critical of crypto ever since he became the chairman of the SEC. And under his command, the SEC has been bold in its decisions concerning various crypto matters.

While the United States is yet to decide upon the nature of cryptocurrencies and digital assets, the SEC is already moving on to the next aspect of crypto. 

NFT marketplaces and sales have been booming since the last year. These unique tokens have managed to lure even the most non-crypto niche audience.

With some tokens sold for millions of dollars, NFTs caught the world’s eyes quickly.

Thus owing to its explosive growth, the SEC now wants to make sure that these NFTs do not turn hazardous in any way.

The SEC is looking into whether or not these NFTs comply with the agency’s specified rules. And also if they are being used to raise money like traditional securities. For the same reason, SEC has begun issuing subpoenas to extract information. 

A significant amount of focus is also placed on “fractional NFTs.” These NFTs are broken down into units of the same asset, and these units can be owned by multiple people, making them part owners of the asset.

Whether or not SEC is looking to attack NFTs now is yet to be known since subpoenas and investigations don’t necessarily take some action.

However, SEC might not back down easily, considering the authority’s recent $100 million penalty on BlockFi for not complying with regulatory laws.

NFTs in the States

Even though these unique tokens haven’t received the legal NOC, they continue to surge in demand and adoption.

Last month the total sales of NFTs on Opensea, Ethereum, and the world’s biggest NFT marketplace, crossed $3.5 billion. The month before that, sales almost touched $5 billion. 

But the growing NFTs are also opening doors to regulatory threats, which is why many marketplaces even delisted NFT collections that offer royalties or raise money for businesses.

Furthermore, the potential of a cyber attack will always loom over these hundreds of thousands of dollars worth of tokens.

After many investors suffered losses from the Opensea listing exploit, one victim decided to take the NFT marketplace to court and sued them for $1 million. 

A lawsuit as massive as this one would undoubtedly catch the regulator’s attention and end up backfiring for the entire platform. That could be the case with SEC as well.