In welcome news, the US Securities and Exchange Commission (SEC) Division of Corporation Finance (Division) yesterday announced “[a]s part of an effort to provide greater clarity” that meme coins do not involve the offer and sale of securities under the federal securities laws. This is to say that transactions in meme coins (as defined below) do not need to be registered with the SEC, but also that buyers and sellers are not protected by federal securities laws. Importantly, the Division limited this interpretation to meme coins that match the following descriptions:

• 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”
• Similar to collectibles, meme coins are typically purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation
• Meme coins typically have “limited or no use or functionality”
• Because they are speculative in nature, meme coins tend to experience significant market price volatility, and often are accompanied by statements regarding their risks and lack of utility

Based on these descriptions, it is likely that some of the most popular meme coins (Dogecoin, Shiba Inu, Pepe, as well as the Official Trump and Official Melania coins) would be considered outside of the SEC’s jurisdiction when transacted in spot markets.

Inherently, by virtue of being classified as non-securities by the SEC, meme coins will generally be categorized as “commodities,” subject to the Commodity Exchange Act and the enforcement jurisdiction of the CFTC. As with other commodities, including wheat, copper, oil and bitcoin, the CFTC is authorized to prosecute manipulation and fraud in these markets, but does not have broader regulatory oversight as it does with derivatives markets.

That said, while the regulatory clarity provided by the SEC is highly anticipated and desired by the crypto industry, it is also worth noting that meme coins have already been considered by many to be “commodities.” Derivatives contracts on certain meme coins have been listed on CFTC-registered derivatives exchanges for some time suggesting that the CFTC, at least, already considers these to be within its purview.

The Division received a noteworthy statement of opposition from Commissioner Caroline Crenshaw, who posited that “the guidance offers no clear definition from law or even a basic dictionary” and called the value of the guidance “questionable.” In Commissioner Crenshaw’s view, the universe of meme coins is diverse, with a “continuum of offers and sales,” and the Supreme Court’s Howey test for investment contracts requires an individualized inquiry into each unique crypto asset.

With so many changes to come under the new Trump administration, we will be following this and other regulatory developments related to digital assets closely.