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In a first-of-its-kind enforcement action, the SEC has charged an NFT project with selling unregistered securities. According to the SEC, NFTs sold by Los Angeles-based media and entertainment company Impact Theory were actually just a clever way to sell shares in the company to unsuspecting investors. In short, buyers weren’t getting digital assets in return for their money, they were getting shares in the company.
The SEC enforcement action is a move that’s sure to reverberate through the NFT market, which has already been going through a prolonged downturn for more than a year. Already, some are predicting that more SEC enforcement actions against other NFT collections could be on the way. If nothing else, the new SEC enforcement action could have a chilling impact on the issuance of new NFT collections by media companies. Nobody wants to become the next Impact Theory.
The end of the NFT hype?
All you have to do is re-watch comedian Pete Davidson’s hilarious Saturday Night Live comedy skit featuring NFTs, and you’ll realize just how much hype there was around this digital asset class just two years ago:
People thought you could become a millionaire overnight, and prices for NFTs went sky-high before crashing back down to earth. Any digital image, no matter how ridiculous, could seemingly become a “one-of-a-kind unique artwork,” and people played the game. Everyone thought that prices had no place to go but up, and that attracted the attention of a lot of speculators.
So it’s safe to say that we’ve definitely reached the end of the NFT hype cycle if the SEC is getting involved. Sure, you can still pay tens of thousands of dollars for a Bored Ape from the Bored Ape Yacht Club, but gone are the days when people could make millions of dollars simply by rolling out a new NFT collection and charging thousands of dollars for a single piece of digital artwork.
Impact on future business models
If the SEC does decide to go after other NFT projects, it could have a serious impact on the ability of media companies to create new business models that go beyond just advertising and subscriptions. All media companies these days are on the search for new revenue streams, and this is where NFTs were being counted on to boost the bottom line. Yes, it’s annoying when media companies try to sell NFTs, but you can’t fault them for trying to make a little extra money.
We’ve already seen a lot of very creative uses for NFTs within the media industry, and it would be a shame if the SEC enforcement action has a chilling impact on these efforts. At the end of the day, NFTs are just a new type of digital asset, and there’s nothing inherently wrong with companies selling digital assets. Where Los Angeles-based Impact Theory seemed to go over the line was by convincing buyers of these NFTs that they were suddenly investors in a common, shared enterprise that was going to become “the next Disney.”
Media companies are clearly still searching for new business models that go beyond just subscriptions and advertising. NFTs promised to unlock an entirely new revenue stream, and now that looks like it won’t happen. So it’s back to square one for media companies as they hunt for a new type of digital asset that won’t attract the unwelcome attention of government regulators.