sec scrutinizes nft market over offerings

For institutional investors, the key benefits of block-chain-based settlement for digital asset securities include real-time settlement (86 percent of respondents said this was among the top benefits), transparency (71 percent of respondents), and fractional ownership (61 percent of respondents).”

Read the full article from Institutional Investor

Sports Collectibles Are the New Alternative Assets

Today, investors are looking for new opportunities outside traditional markets, driving the demand for alternative assets. Marketplaces have responded to this need by offering fractional ownership of significant pieces of sports memorabilia through initial public offerings, allowing investors to purchase shares through their apps.

Sec scrutinizes nft market over illegal crypto token offerings

The SEC wants to examine such a possible classification, particularly in the case of fractional NFTs.

But unlike asset classes such as shares, NFTs are not traded daily and regularly in a liquid market – but only when the owner initiates a sale and a price determination takes place in this context.

To determine without a doubt whether an asset is a security, the US Securities and Exchange Commission uses the so-called Howey test. This classifies assets as securities – and thus under the jurisdiction of the SEC – when investors invest money in a company to benefit from the decisions of the company’s management.

For example, the authority has requested some information about certain token offerings in recent months.

Fractional tokens in focus

What specifically caught the eye of the stock exchange watchdogs was the field of fractional NFTs (fractional tokens), which are broken down into smaller units and can therefore be bought and sold more easily, the media report continues.

Hester Pierce, a crypto-friendly SEC commissioner, had already made it clear a few months ago why US securities regulators might be interested in the NFT market. In an interview with “CoinDesk TV” she had emphasized: “Given the breadth of the NFT landscape, certain parts of it could fall within our competence”.

You should carefully consider whether you can afford to take the high risk of losing your money

NFTs: Extensive investigation planned

As the news portal “Bloomberg” reports, the US Securities and Exchange Commission wants to launch a comprehensive investigation of the NFT market. The investigation, which covers both NFT creators and crypto exchanges, will focus on whether some of the assets violate SEC crypto regulations, according to people familiar with the matter.

Accordingly, it should specifically be about whether certain NFTs, i.e.
digital assets, “are used to raise money for traditional securities,” writes “Bloomberg” further.

Maverick, the firm run by her manager Guy Oseary, late last year signed Yuga Labs, the parent company of Bored Ape Yacht Club, as a client.

That’s not to say that celebrities haven’t found themselves in trouble when promoting crypto projects that left investors with major losses. Kim Kardashian and Floyd Mayweather Jr. are being sued in a class action lawsuit for allegations that they promoted a little-known cryptocurrency called EthereumMax to their millions of followers on social media, artificially inflating its price.
A few weeks after Kardashian’s endorsement, the token’s price plunged.

Related:Seven Industries Rife With NFT Investing Opportunities

Now, all those Bored Apes, hopeful artists and profit-minded speculators clamoring aboard the Crypto Express are facing larger legal questions on how they promote their involvement in NFTs and whether they need to disclose paid endorsement deals.

“Celebrities and social media influencers have a lot of brand power,” said Bob Seeman, a tech and legal adviser and author of the book “Bitcoin: Unlicensed Gambling.” “But this is a whole new area with NFTs so the regulatory interpretation of it and how the regulators will treat it is unknown.”

Related:What the Rise of NFTs Means for Advisors

Read More: SEC Scrutinizes NFT Market Over Illegal Crypto Token Offerings

A key legal question is whether digital assets including NFTs are securities, and therefore subject to the same rules as stocks.

The U.S. Securities and Exchange Commission is scrutinizing creators of NFTs and the crypto exchanges where they trade to determine if some of the assets run afoul of the agency’s rules, according to people familiar with the matter.

A focus of the probe is on whether certain nonfungible tokens, digital assets that can be used to denote ownership of things like a painting or sports memorabilia, are being utilized to raise money like traditional securities, said the people. Over the past several months, attorneys in the SEC’s enforcement unit have sent subpoenas demanding information about the token offerings.

The inquiry is the latest attempt by the SEC under Chair Gary Gensler to ensure the crypto market adheres to its regulations.

In an email to Bloomberg News, FTC spokesperson Juliana Gruenwald reinforced that the agency assesses whether someone has not disclosed a paid endorsement deal — especially if it affects how consumers evaluate the endorsement.

The NFT market exploded last year, drawing attention for multimillion dollar sales and buy-in from celebrities. About $44 billion worth of crypto was sent to smart contracts on the Ethereum blockchain tied to NFTs during 2021, up from $106 million the year before, according to data from Chainalysis.

To gauge celebrity interest in NFTs, look no further than the recent funding round announced by crypto-payment company MoonPay, which has focused on the checkout experience of buying and selling NFTs.
On Wednesday, the company said that up to 16% of its $555 million initial Series A funding round came from musicians, actors and other personalities.

Institutional participation in digital asset securities (security instruments like shares of equity) has been rather de minimis because digitizing an asset does not create any efficiencies or cost savings in the current regulatory environment. As regulatory guidance becomes clearer, we will likely see a path forward where blockchain efficiencies can be realized in a compliant manner.
Digital asset securities, governed by the SEC, can rely on blockchain infrastructure to enable efficiencies in the trade lifecycle. Once these efficiencies can be realized, there is a clear advantage to digitizing securities, and that is when institutional investor participation is expected to become more prevalent.

Here is a snippet: “David said the benefits provided by digital asset securities are too great for investors to overlook.

The inquiry is the latest attempt by SEC Chair Gary Gensler to ensure the crypto market adheres to its regulations.

Read More: Celebrity NFTs Risk ‘Catastrophic Failure.’ Just Ask John Cena

While the SEC has said that many tokens fall under its purview, some crypto enthusiasts argue regulations meant to police the equity markets shouldn’t apply to virtual currencies.

“You have a lot of gray area,” Stark said. “It’s a little harder with an NFT to prove that it’s a security and it’s always going to be on a case by case basis.”

As more high-profile figures enter the space, questions on whether celebrities are in fact paying in full for their digital goods, or simply promoting collections in exchange for money, have started surfacing.

Names include Ashton Kutcher, Bruce Willis, Gal Gadot, Gwyneth Paltrow, Jason Derulo, Mindy Kaling, Shawn Mendes, Matthew McConaughey and Steve Aoki.

For MoonPay CEO Ivan Soto-Wright, it’s clear why artists and musicians are so attracted to NFTs: Web3 and the blockchain technology that underpins NFTs have the potential to disrupt how creators and artists manage their royalties without the help of middlemen, he said. Soto-Wright compared this disruption to artists who got into streaming early and benefited as a result.

NFTs have the potential to change the way films are made, produced and distributed by allowing film creators to maintain their royalties and bypass Hollywood’s existing order of financing by selling tokens.

This system would also allow films to be owned by fans, the NFT owners.

• SEC appears to be examining jurisdiction over NFT market • Fractional NFTs targeted by stock exchange regulators • Will Ripple become the blueprint?

Non-fungible tokens, so-called NFTs, are among the newer trends in the crypto market. In 2021, trading in virtual goods picked up speed, and in 2022 the demand for NFTs on the market seems to be unbroken. This has recently brought the US stock exchange watchdog from the United States Securities and Exchange Commission (SEC) onto the scene, which wants to take a close look at the NFT market.


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