Regulatory probing or capitalizing on untapped markets? – A saga of identifying what are NFTs?

There are three things you can’t avoid in life – Death, taxes, and the debates on NFTs.

The year 2022 seemed more like a movie. From the infamous Luna Crash to the popularity of NFTs, we witnessed it all. 

But out of everything that we are still processing, NFTs made a major dent in Web 3.0 space, particularly because of how much of a breakthrough it seemed to such a large number of people in the world.

In fact, NFTs garnered so much attention that the United States Securities and Exchange Commission (or SEC) now decided to probe into Yuga Labs – the founders of the popular NFT Bored Ape Yacht Club – to conduct a wider investigation into the ‘asset’.

‘But why is this news so important really?’

There’s really no reason to mention the utility and use cases of NFTs right now. But with their soaring popularity and the money involved in NFTs in 2022, it’s almost unavoidable that it also gathered some attention from the authorities as well.

An investigation that reportedly started in March 2022 has now taken a turn where the SEC now claims that NFTs could be more aligned to the fundamentals of general ‘stocks’. That’s not all because there are claims of certain digital assets also violate federal laws.

The investigation that started back in March is firstly about terming whether certain NFTs and fractional NFTs could fall under federal securities laws or not. 

While the credibility and violation of federal laws is a conversation for some time in the future, what matters right now is how the SEC and federal regulators are really looking at NFTs and why they are practically being termed securities, thus making them subject to the same rules as stocks.

To understand this, we need to understand a simple concept – how stocks work!

See the thing is that stocks are an investment tool that allows you to own a share in a company that issues it. This is how most successful companies in the world run. Stocks allow companies to raise money and fund their growth.

Now as an investor in these stocks, you are becoming a part owner of that company. If the company profits, so do you. If the company loses, so do you!

Applying the same kind of analogy to NFTs, if you completely (or partly) own an NFT, you own a digital asset. Now in some cases, you can also claim these NFTs in their physical form, making them a tangible asset. And since it’s a tangible asset, it falls very close to the fundamentals of stocks, something that requires the interference of the regulations.

The line between NFTs, physical assets, and their regulations is very blurry, at least for now. How there are no regulations in the industry is one of the main reasons why many crypto enthusiasts argue regulations meant to police the equity markets shouldn’t also apply to virtual currencies.

Right now it’s hard to group NFTs into a certain type of asset. A few types of assets fall into the category of securities, and some of them don’t. Maybe after the investigation, we will have more clarity as to how NFTs really are recognizable.

However, what’s certain is that we at KoinX are determined to bring you the most important (and of course interesting) pieces of information every week. And what do we ask in return? Nothing but some ❤️ on Instagram and Twitter.


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