The U.S. Securities and Exchange Commission is looking into fractional NFTs, in which assets are broken down into tradable pieces. Such NFTs may qualify as securities under the Howey test; investors fund these NFTs with the intention of making a profit.

Why should we care?
This development further proves that, rather than leaving blockchain-based assets in an unregulated state, even “pro-crypto” government officials think these assets require thorough government regulation. Hester Peirce, a crypto-friendly SEC commissioner, believes some types of NFTs fall under the Commission’s purview. “Given the breadth of the NFT landscape, certain pieces of it might fall within our jurisdiction,” she said. “People need to be thinking about potential places where NFTs might run into the securities regulatory regime.” This latest news comes just weeks after the SEC’s landmark $100M fine against BlockFi for its high-interest savings accounts. In the wake of that settlement, the SEC voiced concern about BlockFi’s lack of federal insurance on financial products. In concert, both this investigation and BlockFi’s settlement gesture to concerns over crypto’s volatility and the relative lack of enforcement surrounding these new asset classes, which, in the end, may have harmful effects for everyday consumers—whether through price crashes or “rug pulls.”