Regulation and SEC investigations may actually bode well for NFTs

It is time for everyone to wake up from the dream of decentralized immunity of regulatory power. While the fight against centralization and advocacy of anonymity have long characterized the NFT space, throughout 2022 the United States Securities Exchange Commission (SEC) has made it clear that crypto and NFT regulation is imminent.

With recent news of the SEC’s investigation into Yuga Labs, there seems to be a lag between Metaverse action and real-world consequences. Many in the space are wondering what the future holds for NFTs as they enter the world of government-controlled assets.

But could the SEC investigation cause serious concern for everyone? Punitive measures remain the only point of contact between the SEC and the NFT space, as bad actors continue to proliferate. Perhaps a more useful question is: Is open dialogue possible? And if so, could this lead both the SEC and the IRS to a much less worrisome Web3 acronym in the near future?

So isn’t NFT regulation that scary after all?

Over the past few years, the idea of ​​government agency in the metaverse has scared and angered the collective NFT community. Since blockchain serves as a home-base for a microcosm that keeps the concept of decentralization near and dear, it’s understandable why agencies like the SEC, IRS, and even the FBI have taken on the role of the enemy.

Make no mistake, paying 10 to 37 percent capital gains tax on NFT profits is not at all desirable, but in general, crypto and NFT regulations seem aimed not at punishing con artists and collectors, but bad actors who continue to tarnish the reputation of blockchain technology. . This is precisely why some of the biggest headlines surrounding government influence in Web3 have focused on the FBI’s insider trading, the prosecution of rag tanners, and the rooting of fraud and money laundering in the NFT space.

Everyone likes decentralization until you realize that it allows some to “abuse” their individual freedoms at the expense of the collective.

Everyone hates centralization until you realize that it allows many to “enjoy” collective freedom at individual expense.

— NFT Ethics (@NFTethics) February 6, 2022

Since there are few regulations surrounding NFTs and crypto (aside from those established by the IRS), it stands to reason that the SEC and allied government agencies are taking their time to figure out best practices for regulating digital assets. After all, it’s not like Yuga Labs was accused of any mischief by the commission; Rather, the SEC’s investigation is intended to serve as a way for policymakers and regulators to “learn more about the novel world of Web3,” as Yuga Labs clarified in a report released. Bloomberg.

Even SEC Commissioner Hester Pierce believes that a collaborative and iterative process of rulemaking is the best way to create a new regulatory framework for crypto and NFTs, commenting in a previous interview with NFT that she now favors the SEC’s approach to prioritizing enforcement. found unhealthy process. The truth of the matter is, the SEC — whose mission is to protect investors, maintain fair, orderly and efficient markets, and facilitate capital formation — won’t be doing its job if it doesn’t keep an eye on new technologies. So perhaps we all knew deep down that control was inevitable.

The future of NFT regulation

Despite turning the wheel at the SEC, regulation is yet to be introduced in the NFT space. Although Commissioner Pearce defined 2022 as the year to lay the groundwork for future legislative and regulatory activity, currently, efforts seem to be focused on the regulation of crypto exchanges.

The SEC has reportedly opened an investigation per US-based crypto exchange In August, mistrust is understandably growing between regulatory powers and exchanges that seemingly only want to create rules more suited to Web3 organizations. While these investigations may ultimately affect the average NFT enthusiast, they are not an immediate threat, since NFTs and crypto remain difficult to classify on a regulatory basis.

According to the proposed 2022 crypto bill authored by US Senators Cynthia Loomis and Kirsten Gillibrand, “digital assets” are locally defined as electronic assets that provide economic or proprietary access rights or power, and include virtual currencies and payment stablecoins. Similarly, “virtual currency” is defined as a digital asset that is used “primarily” as a medium of exchange, unit of account or store of value and is not backed by an underlying financial asset.

These definitions give us some insight into potential regulation, as NFTs can be considered commodities (such as petroleum, cotton, soybeans, etc.) rather than securities, meaning they would fall under the Commodity Futures Trading Commission (CFTC) but when mentioned While the bill attempts to regulate digital asset exchanges, distinguishing between a “centralized” and a “decentralized” exchange, it fails to define what a “digital asset exchange” actually is, seemingly leaving out a key factor in the regulatory equation.

Hopefully, SEC Chair Gary Gensler’s investigations into crypto exchanges will help define and give voice to the Web3 entity. But for now, given the information we have surrounding the Yuga Labs probe, things may look up for NFT regulation for the foreseeable future.

So if you’re an administrator of an important Web3 org, being investigated can provide an opportunity to contribute to the conversation around governance. But for those who are artists, collectors, traders or otherwise general NFT enthusiasts, don’t think positive, but make sure to keep some crypto on the side for taxes come 2023.

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