Bored Apes creator Yuga Labs isn’t seeing the sunny days it was last year. The non-fungible token (NFT) collections the company has put forth are household names. However, they’re a far cry from the speculative investing powerhouse they were just months ago. Now, the company has to deal with a far greater threat than unfavorable market conditions. The Securities and Exchange Commission (SEC) is setting its sights on Yuga Labs, and if other crypto probes are any indication, they won’t let the company off easily.
Bloomberg reports this week that Yuga Labs is the newest crypto company to fall under investigation by the SEC. The government body is looking into whether Yuga Labs’ Bored Apes tokens would classify as securities, rather than commodities. Were it to classify them as the former, it could pin Yuga Labs for conducting unregistered securities offerings and slap the company with a hefty fine.
In addition to the Yuga Labs probe, the SEC is investigating the ApeCoin (APE-USD) token as well. While not an official Yuga Labs offering, the independent crypto project was built by Bored Apes fans to underlie the NFT ecosystem. Yuga Labs has worked closely with the developers of this project to make APE an integral part of products like Yuga’s metaverse space.
The news isn’t surprising when considering the SEC’s blanket-litigation approach to crypto regulation. Gary Gensler and his agency are taking anybody and everybody who has sold a digital asset to court. The SEC is doing this with a very strict reading of the Howey test, as established in SEC v. Howey, which helps to determine whether an asset is a commodity or a security.
SEC Troubles Add to Yuga Labs’ Woes as Bored Apes’ Demand Sags
It’s an interesting probe that the SEC is levying at Yuga Labs. Sure, it is accusing the company of the same crime it charges every crypto company with. But, this investigation is a bit different. Where before the SEC was taking on token offerings, it is now going so far as to label NFTs as securities as well. Seeing as Bored Apes are widely considered digital art rather than a point of payment or a decentralized finance (DeFi) tool, one would assume that NFTs like those would be treated more like physical art — a store of value asset. However, it does make sense for the SEC to test the waters, especially given the wild hype and celebrity endorsement driving Bored Apes.
But this probe doesn’t come at a good time for Yuga Labs. The Bored Apes collection has been stagnating in recent months. In July, sales of the NFTs reached a low on the year. By September, the trading volume of Bored Apes dropped even further, a full 90% from its all-time high volume not months before. Meanwhile, the average price of these tokens themselves had plummeted, falling to lows not seen since last year.
This isn’t a failure on the part of Yuga Labs. Rather, the entire NFT space has been seeing a decline in interest. This is likely due to the macro factors inflicted upon all of crypto by the Federal Reserve via quantitative easing. The third quarter saw the NFT market’s total transaction volume drop a whopping 60% over the previous quarter. Since Bored Apes are still the top dog in terms of trade volume and overall notoriety, they are simply taking a bullet for the rest of the asset class.
On the date of publication, Brenden Rearick did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.