NFT Markets since Crypto Winter & Regulatory Landscape across Jurisdictions
Date: 5 February 2025
Author: Gaya Chandrasekaran
The NFT market hit its peak during the 2021-22 boom and although it has become quieter since, it has not disappeared. Following the crypto winter period (which is widely accepted as having come to an end with Bitcoin rising over 150% during 2023 and spot Bitcoins being approved for sale in the US in Jan 2024), which saw plummeting cryptocurrency prices and reduced enthusiasm for speculative NFTs, the market has been undergoing a transformation. Trading volumes decreased from $12.6bn in Q1-22 to $3.9bn in Q1-24. Despite this downturn, Q2-24 saw a slight uptick, with trading volumes reaching $4bn, suggesting potential stabilization.
In 2024, while the speculative frenzy had calmed, NFTs were finding renewed purpose in more sustainable and functional applications (as below), potentially setting the stage for a more mature and diversified market.
- Integration with Real-World Assets (RWAs): NFTs are increasingly used to tokenize tangible assets like real estate, art, and intellectual property. This adds real-world value and broadens their appeal beyond digital collectibles.
- Gaming and the Metaverse: NFTs remain popular in gaming, allowing users to own in-game assets and virtual properties. Companies like Square Enix are incorporating NFTs into their ecosystems, and blockchain-based games continue to innovate
- Dynamic and Utility-Driven NFTs: New NFT types that provide an enhanced value proposition, sustainability and seek broader adoption include dynamic tokens that evolve or unlock new features based on holder activity or specific conditions and utility-driven token such as those providing access to exclusive content or communities, loyalty and reward programs (Brands use NFTs as a means of rewarding loyal customers with discounts, priority services, or exclusive products), token-gated commerce (Certain NFTs grant access to purchase limited-edition products or participate in exclusive sales; eg. Adidas x BAYC collab), certification (NFTs are used to verify credentials, memberships, or ownership of assets securely and transparently; eg. certificates for educational qualifications).
Please refer to the following articles on Fintech Circle Insights in relation to NFT Use Cases based on applications and sectors with specific examples published during Q3-23.
- NFT Use Cases IV (Sector-based 2/2)
- NFT Use Cases III (Sector-based 1/2)
- NFT Use Cases II (Application-based)
Nevertheless, challenges persist. Widespread adoption is hindered by regulatory uncertainty, public skepticism from early hype and ongoing scams, and the need for clearer use cases. However, there are signs of recovery as the industry works to address these issues.
Please refer to my article on Fintech Circle Insights in relation to NFT scams.
The regulatory landscape for NFTs varies across jurisdictions and reflects differing approaches to digital assets. Here’s an overview of the current regulatory guidelines in key regions:
- United States: The US lacks specific legislation for NFTs. The SEC (Securities and Exchange Commission) has been active in assessing whether certain NFTs qualify under the Howey Test (which defines investment contracts). Recent enforcement actions suggest that NFTs offering profit potential or resembling investment schemes may be subject to federal securities laws.
- European Union: The EU does not have a unified regulatory framework for NFTs. The Markets in Crypto-assets Regulation (MiCA) introduced in 2020 excludes NFTs from its scope. Nonetheless, if an NFT grants rights similar to that of financial instruments, such as profit-sharing, it could fall under existing financial regulations.
- United Kingdom: The UK has recently taken steps to clarify the legal status of digital assets, including NFTs. Parliament has introduced legislation recognizing cryptocurrencies and NFTs as personal property, providing owners with legal protection against fraud and the ability to reclaim stolen assets through the courts.
- China: While cryptocurrencies are banned in Mainland China, individuals can still buy and sell NFTs. There are no specific laws regulating NFTs; however, in April 2022, major financial associations issued an initiative to prevent NFT-related financial risks, indicating a cautious stance towards these assets.
Globally, the regulatory environment for NFTs is evolving. Many jurisdictions apply existing financial and anti-money laundering (AML) regulations to NFTs, especially when they are used in ways that resemble traditional financial instruments. The Financial Action Task Force (FATF) recommends a ‘substance over form’ approach, suggesting that regulatory treatment of an NFT is determined by the function of the NFT.
Given the rapidly changing regulatory landscape, it’s crucial for NFT creators, buyers, and platforms to stay informed about the legal requirements in their respective jurisdictions to ensure compliance and mitigate potential legal risks.
NFTs have demonstrated how digital assets can be uniquely identified, owned, and traded on a blockchain, creating value in areas like art, gaming, and community engagement. Their success has sparked widespread interest in tokenization’s potential to revolutionize ownership and investment across a wide spectrum of real-world assets.
Asset tokenization expands on the core principles of NFTs, applying them to tangible and intangible assets such as real estate, commodities, stocks, bonds, and intellectual property. It brings liquidity to traditionally illiquid markets, enables fractional ownership, and increases transparency and efficiency in asset management. It’s a topic that aligns with global trends, including the digitization of finance, regulatory evolution, and the democratization of investment opportunities.
In the next few articles I will be exploring the concept of asset tokenization, emerging key themes and future potential.
References
- https://www.kiplinger.com/investing/cryptocurrency/is-the-crypto-winter-over
- https://www.kraken.com/learn/nft-statistics
- https://www.reuters.com/legal/legalindustry/are-sales-nonfungible-tokens-investment-contracts-subject-regulation-under-2024-10-23/
- https://dappradar.com/blog/all-you-need-to-know-about-global-nft-financial-regulations
- https://natlawreview.com/article/nft-collection-brave-nft-world-regulatory-review-nfts-part-2
- https://www.fnlondon.com/articles/uk-lawmakers-to-clarify-cryptos-legal-status-as-adoption-grows-fc299510
About the Author
Gaya works in the Global Digital Solutions Group (DSG) within Santander Corporate & Investment Banking (SCIB), which focusses on developing innovative, sustainable and profitable digital capabilities and providing state of the art advisory services to clients.
She joined Santander in 2014 gaining broad experience across Corporates & FIG in SCIB and has also worked on several strategic initiatives including regulatory deliverables. Her work involved deal structuring, due diligence and portfolio management. During this period, she has won awards and nominations to Accelerating You Programme for Future Leaders and Global Risk Leadership Programme.
Gaya recently completed the Fintech Programme from Oxford University. She holds a Masters in Finance from London Business School (Recipient of Graduating Student Award) and an MBA (Gold Medallist) from India.
She has contributed actively to alumni engagement at LBS since graduation through several leadership positions, most recently as an ExCo Member of London Alumni Club where she led events on identifying fintech winners, cyber risk, sustainability & factor investing involving C-suite speakers, industry experts and faculty.
Gaya is a Mentor and the Head of Personal Excellence Programme (PEP) for London with Women in Banking & Finance (WIBF). She is passionate about supporting women in their ambitions and enjoys organizing knowledge-sharing networking events.
Outside her day job, Gaya is a self-taught artist and has been influenced by art right from her early childhood. She loves learning new techniques and underwent training in India as well as in the UK (Slade School of Art). Her choice of themes are inspired by key life moments. An expression of her thoughts and emotions, her artworks invite the audience to go deep within, explore and connect with their own experiences.
Gaya offers NFTs in lieu of a Certificate of Authenticity to all her collectors – its her mission to facilitate digitisation to her audience. Based on feedback from a renowned NFT Collector she is now exploring software tools to mint NFTs of pure digital artworks.
Gaya’s first solo exhibition was in 2018 at Santander’s London office, a fundraiser where she sold >70% of artworks donating 50% of proceeds to charity. Her painting, ‘The Golden Lion’ won a special commendation in the David Shepherd Wildlife Foundation’s #sketchforsimba competition in 2019.
She conceptualised the first ever Art Exhibition within the LBS community, which led to LBS Art Week in 2021 where her paintings were selected for the online exhibition and she was a chosen speaker of the Artists Panel. She exhibited her artworks with The Holy Art Gallery and The Boomer Gallery in London during 2022. Her artworks are published in the Artist Talk Magazine Issue 22 & 23.
“Please note the opinions expressed within the content above are solely the author’s and do not reflect the opinions and beliefs of people, institutions, or organisations that the owner may or may not be associated with in a professional or personal capacity.”
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