Unique digital assets that are intended and used as collectibles and not as payment or investment instruments -- digital collectible non-fungible tokens -- should not be considered virtual assets according to a recent report issued by the Financial Action Task Force (FATF). This means these instruments should not be regulated as crypto currencies, and direct offerors and sellers of digital collectible NFTs should not be regulated as virtual asset service providers (e.g., money service businesses or money transmitters). However, cautions FATF:
"Some NFTs that on their face do not appear to constitute VAs may fall under the VA definition if they are to be used for payment or investment purposes in practice. Other NFTs are digital representations of other financial assets already covered by the FATF Standards."
It is also unlikely that a digital collectible NFT would constitute an investment contract (and thus a security) under Howey any more than an individual piece of art, a video clip, an online game piece, or a baseball card would constitute an investment contract. Each of these objects is purchased individually for its own inherent worth and does not typically represent an investment of money in a common enterprise with the reasonable expectation of profits derived from the efforts of others.
The value of a Mickey Mantle baseball card is a function of the perceived worth of Mickey Mantle and the scarcity of such card. This is true whether the card is issued on thin cardboard or digitally.
However, says, the FATF, "it is important to consider the nature of the NFT and its function in practice and not what terminology or marketing terms are used."
So something that is promoted and used as a collectible -- such as a digital collectible NFT -- should be outside scope of cryptocurrency or securities regulation. However, something that is meant to have other purposes may be problematic.
Apparently, the Financial Services Commission of South Korea recently re-confirmed its position -- consistent with the FATF's view -- that NFTs typically do not constitute virtual assets and should not be regulated as such.
The FATF is an independent inter-governmental body that develops and promotes policies to protect the global financial systems from money laundering, terrorist financing and the financing of weapons of mass destruction. The FATF does not draft laws or regulations in any jurisdiction.
"[Non-Fungible Tokens], depending on their characteristics, are generally not considered to be [virtual assets] under the FATF definition." -- FATF Updated Guidance on Virtual Assets and Virtual Asset Service Providers, October 2021