Bored Ape Yacht Club: No More Monkey Business

In late 2022, a difficult period for the cryptocurrency industry persisted, marking the middle of what many considered a “crypto winter.” Popular tokens and currencies like Bitcoin and Solana lost over 50 per cent of their value, with other Web 3.0 adjacent technologies following the same path. Debate surrounded the industry at large, and the US Securities and Exchange Commission (SEC) flexed its regulatory muscle on a “poster boy” non-fungible token (NFT), Bored Ape Yacht Club (BAYC), in efforts to provide more structure to the NFT market. The chairman of the SEC, Gary Gensler, who was extremely knowledgeable in the crypto space and also considered a tough regulator among the community, had to determine how to classify BAYC. Ultimately, questions surrounding BAYC’s legal interpretation were being posed in the SEC's investigation: Should BAYC be regulated as a security? Were investors protected? Should NFTs be considered art? Did BAYC violate security regulations? As one of the leading representatives of the entire $2 trillion crypto industry, the potential regulation of BAYC had major implications for its peers, the underlying technology, and a spectrum of investors.

This case can be used in managerial economics and behavioural economics courses at the undergraduate and graduate level. After working through the case and assignment questions, students will be able to do the following:<ul><li>Understand the role of the SEC in financial markets and how it can protect investors.</li><li>Conceptualize NFTs and their place both as financial tools and as a means of community building.</li><li>Understand how assets like NFTs can trigger irrational behaviour in people, which leads to irrational markets.</li><li>Apply behavioural concepts such as k-level thinking, greater fool theory, and fear of missing out to a potential NFT asset bubble.</li></ul>

• cryptocurrency
• asset bubbles
• non-fungible tokens (NFTs)
• regulation
• Howey Test
• behavioral economics