The Securities and Exchange Commission (SEC) has clarified that the majority of meme coins are not classified as securities.
This announcement has sparked discussions among stakeholders, as it means certain meme coins will not fall under SEC regulation. As a result, exchange operators can launch meme coins without fear of regulatory enforcement.
“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,” the SEC stated.
“As such, 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 of 1933 (‘Securities Act’) or fall within one of the Securities Act’s exemptions from registration. Accordingly, neither meme coin purchasers nor holders are protected by the federal securities laws.”
The SEC described meme coins as crypto assets inspired by internet memes, trends or events, often promoted to build an online trading community. Since their value is primarily driven by speculation and market demand – similar to collectables – and they have little to no practical use, meme coins do not qualify as any of the financial instruments explicitly listed in the definition of a “security.”
Interestingly, US President Donald Trump launched a coin just days before his inauguration, which lost $500m in market cap overnight – a trend that follows the launch of most of these coins, resulting in a big payout for the creator and a major loss for others.
Earlier this month, Argentine lawyers accused President Javier Milei of fraud after investors suffered losses following his promotion of the meme coin $LIBRA.
However, the SEC’s new guidance suggests that the offer and sale of meme coins do not constitute an investment in an enterprise, nor are they undertaken with a reasonable expectation of profits 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,” the SEC said.
“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 collectable.
“Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.”
While these regulations may create opportunities for bad actors to exploit the nature of meme coins, the SEC noted that its guidance does not apply to meme coins that deviate from the descriptions outlined above.
Additionally, it does not cover products labelled as “meme coins” as a means to evade federal securities laws if they would otherwise qualify as securities.
The SEC concluded: “Further, 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.”
