Cryptoassets: Non-Fungible Tokens – ASA

22 May marked “Bitcoin Pizza Day”, a day on which lore tells us, in 2010 programmer Laszlo Hanyecz purchased two large pizzas for 10,000 Bitcoin. Since 8 October 2023 the regulation of the advertising of cryptocurrencies, including Bitcoin, has been taken into the remit of the Financial Conduct Authority (FCA), but given that Bitcoin Pizza Day is the closest thing to a “Red Letter Day” for the cryptoasset sector, this is a good time to provide a refresher about the ASA’s role in regulating non-fungible tokens (NFTs), because these remain within the remit of the ASA. Whilst the advertising of NFTs is a nascent area and the public utility of NFTs is still taking shape, the ASA has established positions with precedent rulings for ads for NFTs. 

The ASA’s rulings for NFT ads are generally compatible with the widely held view that NFTs are a type of digital claim on an asset that is “minted” on a blockchain through a “smart contract”, but the rulings the ASA has made could also apply to digital assets that exist outside this definition. However, NFTs are a diverse range of entities, and it is likely that ads for NFTs of different types will potentially require different treatment under the rules. For example, digital art and digital collectibles pose different risks and challenges to NFTs for digital ticketing. NFTs that are non-commercial, such as digital authentications for official documents, would in turn need to be considered within the parameters of how they are being used and therefore advertised. 

Because NFTs are a technology that is still developing, advertisers should consider how Section 3 of the CAP Code on misleadingness applies to their advertising. Rule 3.3 requires that ads not omit material information, that is information that the consumer needs to make an informed decision. Material information must also not be hidden or presented in an unclear, unintelligible, ambiguous, or untimely manner.

There are additional specific inclusions of what constitutes material information in ads that quote prices for advertised products in rule 3.4. Because of the relative novelty of NFTs, the ASA may take the view that the average consumer is unlikely to be well-informed of NFTs or how they work. 

NFTs as investments 

Advertisers should consider whether the NFTs that they are advertising are likely to be considered by consumers as a form of investment. Items of art or that are collectible in nature, that might fulfil a personal interest, might also be considered worthy of investment by consumers as a store of value. Advertisers have defended their ads on the grounds that their NFTs are “collectibles” as opposed to “investments” (FC Barcelona, 21 December 2022), but the ASA has considered that NFTs that behave like collectibles are likely to be understood by consumers as investment products. This means that advertiser should consider the rules for financial products, services and investments in Section 14 of the CAP Code. 

Any ads for NFTs likely to be viewed as investments, must contain a clear and prominent statement that makes clear the risks of NFTs, such as that they are an unregulated cryptoasset and that their value can go down as well as up. If advertisers make claims about the past performance of the value of an NFT (Turtle United, 21 December 2022), they should make clear that the past performance of an NFT does not necessarily give an indication for the future. 

Restrictions on the use of NFTs 

Advertisers must consider what rights are conferred to the owner of an NFT. NFTs which are sold that contain intellectual property must make clear that ownership of the NFT does not necessarily confer intellectual property rights for the content of the NFT. In a case investigated by the ASA (FC Barcelona, 21 December 2022) the NFT featured a graphic of Johan Cruyff’s “impossible goal” in 1973. The restrictions on ownership excluded intellectual property rights for the image, restrictions on displaying the NFT for commercial purposes and modifying it in any way. The ASA considered this was material information which should have been made clear in the ad. 

Which blockchain, which wallet? 

Advertisers must not omit the technical requirements for consumers to obtain and hold an NFT if the absence of that information is likely to mislead. The ASA found a FanCraze Technologies Inc ad for Essex County Cricket Club NFTs misleading on the basis that it did not make clear which cryptowallet a prospective buyer would need to receive an NFT or which blockchain the NFTs operated on. The NFTs were to be minted on the FanCraze platform on the Flow Blockchain and users could only trade their tokens with other users there, on the FanCraze peer-to-peer marketplace. The ASA considered this to be material information that should have been included in the ad, and that the ad was misleading on that basis. 

Costs and fees 

As with all products, price claims must not mislead consumers by omission, and the minting or method of sale of NFTs can incur costs. In a case where an NFT was to be auctioned (FC Barcelona) the ad was found misleading on the basis that it did not make clear that the buyer was required to pay fees in addition to the hammer price to the auction house. The ASA has also found that fees which commonly apply to NFTs such as a minting fees or gas fees are material information required to be in the ad (Turtle United NFT, 21 December 2022). 

For further guidance on non-broadcast ads for NFTs, our Copy Advice team is on hand to provide free,  bespoke advice. 

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