Key Points
- The Securities and Exchange Commission (SEC) does not consider memecoins as securities under US laws.
- Memecoins are seen more as collectibles, not part of a larger enterprise, and their value is driven by market demand and speculation.
The Securities and Exchange Commission (SEC) recently indicated that memecoins may not be subject to US securities laws.
This statement was issued on February 27 by the commission’s Division of Corporation Finance. It addressed a long-standing debate about whether cryptocurrencies, especially memecoins, fall under federal securities laws.
Memecoins as Collectibles
The SEC’s current stance is that memecoins are more akin to collectibles than investments, and they don’t satisfy the definition of a security under the Howey test.
“Memecoins are usually bought for entertainment, social interaction, and cultural reasons, and their value is primarily driven by market demand and speculation. In this regard, memecoins are similar to collectibles,” the SEC officials noted in a recent staff statement.
The commission further clarified that memecoins are not part of a larger enterprise. There is no central team pooling funds to develop a business, and buyers are not investing in a structured project expecting long-term growth.
Price Movements and Regulations
The SEC added that the price movements of memecoins stem from “market demand and speculation” rather than the “entrepreneurial or managerial efforts of others.”
Since their value is tied to hype and collective sentiment—much like collectibles—the agency said they fail to meet the Howey test’s criteria for an investment contract.
The SEC also warned that scams involving memecoins could still face enforcement from other federal or state regulators. While the tokens themselves may not be securities, misleading investors or engaging in deceptive practices could still lead to legal issues.
The statement only applies to meme coins that fit its description. Tokens disguised as memecoins to sidestep securities laws could also be subject to regulation, depending on their structure and purpose.
The agency clarified that its views are not a “rule, regulation, guidance, or statement” of the SEC itself. It described the statement as a staff interpretation with “no legal force or effect.”
The commission’s objective is to provide “greater clarity on the application of the federal securities laws to crypto assets”. However, it also made it clear that the classification of meme coins could still depend on “the economic realities of the particular transaction.”
The SEC, currently led by a pro-crypto leadership, has significantly shifted from its previous stance under former chair Gary Gensler, who mostly viewed all cryptocurrencies, except Bitcoin, as securities.
During Gensler’s tenure, the SEC pursued legal actions against major crypto entities, including Coinbase and Ripple Labs. A 2023 ruling found that XRP’s programmatic sales didn’t violate securities laws, but the SEC appealed the decision.