Are NFTs Illegal? - NFT Price Manipulation and More
As of this point, NFTs are not illegal, but they can be banned due to the exchanges or marketplaces they are listed on. There are many issues within this relatively new space, as you can imagine, that can cause government sanctions. Are NFTs legal? Yes, they are, but there can be repercussions if the crypto exchanges or marketplaces they are on have illegal dealings
How NFTs Can Be Illegal
Let’s find out how exactly NFTs can be deemed illegal, so you can understand what to look out for.
NFT Insider Trading
Yes, insider trading can happen with NFTs as well. Just like with the stock market, insider trading in the NFT space is illegal. In the fall of 2021, an employee who worked in one of the largest NFT marketplaces faced allegations that he/she purchased NFTs before the NFTs dropped on the platform and resold them after the price soared.
Doing so resulted in a profit of almost $67,000. Of course, learning of this, the marketplace imposed new regulations to prevent this from happening in the future when confidential information is misused.
Unfortunately, since NFTs are part of such a new space, there are no clear outlines for protection, regulation, and prosecution.
NFT Market Manipulation
Then there is the issue of NFT market manipulation in order to make an NFT appear popular or in demand, and this is called “wash trading”. The harm in this is it creates a misconception that a certain NFT or collection is a good investment. For people who are full-time in the NFT space, they may be able to weed this out, but not everyone has the time to really dig into everything.
It could also shatter the hopes for some investors who were looking to realize a profit from secondary sales if the value of an NFT or collection was mispresented in this way.
Potential Money Laundering
Some NFTs can sell for millions, and assets like that leave room for money laundering. It’s very easy to do so by masking illegal transactions by creating an NFT or an entire collection as a front, then listing the assets for the amount of currency someone wants to launder. Because NFTs are such an unregulated space, there are yet any precautions to prevent this from happening.
Lastly, there are NFT rug pulls that could be considered a form of fraud. An NFT rug pull is when a creator makes an NFT, promises the investors all sorts of things related to the utility, etc., then takes all the investors’ money and disappears without following through on the project.
This can happen not only with NFTs but also with cryptocurrency. A distinguishing factor that a project may be a rug pull is the identification of its creators. If those behind the project are doxxed, meaning their identity is public, then it’s less likely that investors will lose their money.
As we mentioned, NFTs haven’t been deemed illegal in the U.S., but there have been some countries and enterprises that are not very willing to accept them. NFTs can be banned due to collateral damage from being listed on a banned exchange.
Chatex, a Latvia-based crypto exchange, faced sanctions by the U.S. for their alleged participation in the facilitation of ransom transactions and their role in helping ransomware gangs. Suex, an exchange with ties to Russia also faced sanctions for similar allegations. Due to this, the NFTs listed on those exchanges have been banned as well.
• Are NFTs money laundering?
No, NFTs are not money laundering. NFTs are an attempt at decentralized ownership of digital assets thanks to blockchain technology. Because of the high prices they can go for, NFTs are susceptible to money laundering, but this goes for any expensive asset.
• Is NFT Trading Illegal?
No, NFT trading is not illegal. As of now, NFTs do not have a regulatory body, which means investors, creators and traders may not be completely protected from fraud and other illegal transactions. There are illegal things that can be done with NFTs, but NFTS are not illegal.
NFTs are illegal if they are used illegally. Money laundering, market manipulation for profit, and rug pulls are all examples of how NFTs can be misused. There is a downside to every good thing, and NFTs are largely great for helping artists and creators tokenize their pieces and the utility behind them can help support those in need.