Consulting firm MotleyFool has warned investors of metaverse coin project ApeCoin and Bored Ape Yacht Club. According to the firm, he states that the investigation by the SEC could create problems for investors and other cryptocurrencies in the future. Expert RJ Fulton explains why.
The company behind popular projects: Yuga Labs
Probably the best collection of Non Fungible Token (NFT) on the market Bored Ape Yacht Club (BAYC) NFTs. Pictures of these monkeys in different clothes and with different facial expressions have taken the internet by storm. It has also attracted the attention of celebrities like Snoop Dogg, Justin Bieber, Jimmy Fallon, and Kevin Hart. The prices of these NFTs rose at some point. Six of them sold for more than $2 million. Moreover, in October 2021, a BAYC was sold for a tearful $3 million.
What may not be known, however, is that there is actually a company behind BAYC NFTs. Yuga Labs began work on BAYC in February 2021 before launching the collection in April that same year. As its fame and notoriety skyrocketed, the company took it a step further. It now owns the rights to other popular NFT collections like CryptoPunks and Meebits.
Yuga Labs didn’t stop there. This year it launched its own metaverse coin project, ApeCoin (APE). It also launched Otherside, a metaverse platform where investors can buy virtual real estate with their new ApeCoin. In a short time, Yuga Labs has established itself as the industry standard for Web3 development and metaverse technologies. So much so that comparisons have even been made to being the Disney of Web3.
Probably, problems await the metaverse coin project in the future.
But now, this NFT star will likely face a few hurdles. Earlier this month, the Securities and Exchange Commission (SEC) announced that it will investigate Yuga Labs due to concerns that BAYC NFTs and ApeCoin may be unregistered securities. Immediately after the news, ApeCoin fell 10%. Hence, more pain is possible for investors in Yuga Labs assets.
The investigation itself does not constitute an accusation. However, the situation changes if the assets are considered securities. The possible consequences of this situation include fines, compensation and even civil or criminal charges. To determine whether an asset is considered a security, the SEC uses the Howey Test. The Howey Test, named after a Supreme Court case in the 1940s, defines a security as “an investment of money in a joint venture with the expectation of profits from the efforts of others.”
Let’s open this. The key pieces here are the “expectation of profit” and the “efforts of others”. It’s likely that ApeCoin was created by the efforts of others, especially developers who probably spent hours writing and analyzing code. After it hit the market, investors most likely bought ApeCoin hoping it would generate a profit. The same goes for BAYC NFTs. People bought them because of the potential value they would generate. Can you see where this is going?
What should investors pay attention to?
Whether cryptocurrencies and NFTs are securities is part of a growing dilemma that is slowly coming to the fore on the SEC’s agenda. There is no official legislation yet. Despite this, it is likely that the SEC will include cryptocurrencies and blockchain companies like Yuga Labs in its jurisdiction.
The classification of crypto assets as securities does not mean the end of cryptocurrencies. However, it will definitely change the landscape drastically. In a future where the SEC has become a cryptocurrency watchdog, it will likely require blockchain companies and developers to register as securities and provide additional information to increase transparency, as is currently the case with publicly traded companies.
If that’s what the future holds, it likely means the end of ‘pump and dump’ cryptocurrencies, where developers swallow a new cryptocurrency or Blockchain, get rich and leave the bag in the hands of investors. Every investor needs to make sure their portfolio has what it takes to pass the upcoming regulation. For this, they need to keep this in mind before buying a cryptocurrency.
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