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The NFT Market and Fallout from the FTX Scandal
The FTX bankruptcy scandal that has shaken the largely unregulated cryptocurrency world has slowed but isn't likely to end the roll-out of celebrity-related, non-fungible digital token (NFT) offerings. But how might the FTX story impact a push for federal regulation of the NFT market?
F-NFTs — which are "fractionalized" NFTs and certainly not the largest share of the NFT market — present unique legal questions and may provide insight into where U.S. regulation of digital assets is headed. Recent actions by the U.S. Securities and Exchange Commission (SEC), together with certain statements by SEC commissioners, may indicate a shift in approach toward a rebuttable presumption that digital assets are securities, without deference to formal legal tests.
Some background: As NFTs gained mainstream traction, the market produced sky-high prices that made individual ownership of popular NFTs cost-prohibitive for many. F-NFTs allow a group to pool resources to purchase an NFT, dividing ownership of the NFT into fractional interests, which are, ironically, generally fungible in relation to one another. The SEC, whose jurisdiction is of course limited to securities, has thus far not initiated any enforcement proceedings contending that NFTs are securities. And this positioning may be calculated.
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