4. Are NFTs Securities ?

So, Are NFTs Securities?

To find out if NFTs are securities, let’s go down the list.

  1. NFTs don’t meet the criteria for debt securities. They share virtually no DNA with a bond and don’t represent a loan made to or by the artist.
  2. By that logic, NFTs don’t fit the bill for hybrid securities either.
  3. How about derivatives? NFTs are too simple to be derivatives. They may be complex in concept, but they’re pretty straightforward as an asset. They’re just art pieces and don’t represent any other underlying asset.

That leaves us with equity securities. It might seem strange to compare shares of NVIDIA to a digital artwork of a cat in a cowboy hat. But stocks and NFTs share a surprising amount in common:

  • They both represent ownership
  • External market forces drive their values
  • They’re both expected to experience capital appreciation (in some cases), and,
  • Both are perceived as good “investments” by certain players

But at the same time, NFT collectors have been able to stave off regulators by repeating a simple defense: “Hey, man, they’re just art.”

Amazingly, this defense works. Although NFTs straddle the line between product and security, the SEC disqualifies them as securities (for now) because they fail the Howey Test.

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