In another major regulatory shift for crypto, the SEC now says that meme coins are generally not securities under federal law.
The SEC’s Division of Corporation Finance put out a statement revealing its current stance on meme coins, saying that “persons who participate in the offer and sale of meme coins do not need to register their transactions with the Commission under the Securities Act.”
The federal securities watchdog said that meme coins – which it defined as a “type of crypto asset inspired by internet memes, characters, current events or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading” – are more like collectibles than securities.
Staff statement
The staff statement reads as follows: “The offer and sale of meme coins does not involve an investment in an enterprise nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.
“First, meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise. Second, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. That is, the value of meme coins is derived from speculative trading and the collective sentiment of the market, like a collectible.”
“It is the Division’s view that transactions in the types of meme coins described in this statement, do not involve the offer and sale of securities under the federal securities laws … Accordingly, neither meme coin purchasers nor holders are protected by the federal securities laws,” it goes on to say.
Because meme coins have “limited or no use or functionality,” the SEC does not believe they meet the definition of a security under the Howey Test and are therefore outside of the SEC’s jurisdiction.
Corporation Finance did note, however, that although the offer and sale of meme coins may not be subject to the federal securities laws, fraudulent conduct related to the offer and sale of meme coins may be subject to enforcement action or prosecution by other federal or state agencies under other federal and state laws.
Adding some context
This announcement crystallizes comments made by Commissioner Hester Peirce – who now heads up the SEC’s newly-created Crypto Task Force – earlier this month during an interview with Bloomberg TV. In the interview, Peirce said “many” of the meme coins on the market fall outside the SEC’s jurisdiction. (She also just issued a statement in support of the the dismissal of the civil enforcement action against Coinbase.)
In January, President Donald Trump signed an executive order on cryptocurrency, in which he says he wants to make the US “the crypto capital of the planet.” It calls for the creation of a cryptocurrency working group to propose new digital asset regulations and to look into the creation of a national cryptocurrency stockpile, possibly from cryptocurrencies seized by the federal government through law enforcement efforts.
Trump-linked crypto ventures, including meme coins known as $TRUMP and $MELANIA, and tokens issued by World Liberty Financial, have raised concerns among ethics experts and market participants about conflicts of interest. Lawmakers have accused the president of using these tokens “to earn extraordinary profits off his presidency.”
Meme coin frenzy
Speaking of the $TRUMP and $MELANIA meme coins, their value has been dropping and for the leading meme-coin platform called Pump.fun that has been affected by that drop, Axios reports.
Pump.fun makes it easy for anyone to launch a meme coin on the Solana blockchain and has greatly contributed to the meme-coin frenzy.
What seems to have happened is par for the course in the crypto marketplace: retail investors get really excited about something, but then others build trading bots that gobble up all of the opportunities with trading strategies that get better over time. That makes retail investors go sour on that type of trading, and then the bots don’t have as many folks to trade against.
But it might be too early to rule the coins out. Plus, you never know what other crypto products the president, Elon Musk, or anyone associated with this administration might devise in a far more permissive digital asset environment. “MU$K” coin, anyone?
