NFTs: regulators go ape amid market downturn

The market for non-fungible tokens (NFTs) is in flux. Trading volumes have collapsed since the start of the year as the crypto winter rolls on. In the past 30 days alone, the average price of a Bored Ape Yacht Club NFT — think monkey avatars with sailor hats and gold teeth — has dropped by a fifth according to blockchain tracker DappRadar. The price of ApeCoin, the cryptocurrency linked to Bored Apes, has fallen 80 per cent since May.

Some companies once enthusiastic to hitch their wagon to the latest tech buzzword are shelving plans. Assassin’s Creed video game publisher Ubisoft talked up the idea of a digital market only to say that it was just researching ideas. This week, news network CNN shut its marketplace for tokens of “news moments”. 

Hobbyists may be getting out just in time. NFTs are often bought in cryptocurrencies. Criminal activity in crypto reached a new high this month, according to blockchain analysis firm Chainalysis. But they might benefit if regulators step in to oversee the market. The US Securities and Exchange Commission is reported to be investigating whether NFTs sold by Yuga Labs, creator of Bored Ape Yacht Club, are securities.

There has yet to be a satisfying answer to the question of what NFTs are for. In theory they are a practical application for blockchain: tokens that act as proof of ownership for digital files. For some investors, however, they may have simply been a way to make use of cryptocurrencies that exploded in price last year.

Numerous brands hope NTFs can build online loyalty, though some projects look suspiciously like a desire to buy into hype. Did luxury brand Balmain need to engage customers with Barbie-themed NFTs? Does British artist Damien Hirst need to set fire to his own artwork so that it exists as a corresponding NFT only?

It is possible that the market in tokens for images has been an unhelpful distraction. Verifying ownership of collectibles and licences is less eye-catching than jpegs but it could be more useful.