Most meme coins are not securities, and their offer and sale will not need to be registered or require an exemption from registration, SEC staff said in a clarifying statement on Feb. 27, 2025.
Meme coins are generally collectible digital assets with little or no user functionality. These coins are often purchased and traded for entertainment and often relate to current events and popular culture. Although the staff said it will not regulate meme coins nor combat fraud related to meme coin transactions, the statement stressed that market participants must still evaluate the economic realities of all meme coins in transactions on a continuing basis to determine if these assets are securities.
Although individual meme coins may have unique features, meme coins the SEC is unlikely to regulate may have some or all of the following common features, according to the statement:
- the coins will be purchased for entertainment, social interaction, and cultural purposes;
- market demand and speculation primarily drive meme coin value, similar to collectibles;
- meme coins typically have limited or no use or functionality;
- given their speculative nature, meme coins tend to experience significant market price volatility;
- statements regarding their risks and lack of utility – other than for entertainment or other non-functional purposes – often accompany meme coins.
The SEC staff analyzed the features of a typical meme coin under the Howey test – the SEC’s fundamental framework for whether a crypto asset is an investment contract. The Howey test determines if certain arrangements or instruments are investment contracts based on their “economic realities.”
The statement included the following elements and conclusions with respect to the Howey test:
- A meme coin purchaser will generally not be making an investment in an enterprise. That is, promoters do not pool their funds are together 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, but rather from speculative trading, like a collectible such as a baseball card.
- Finally, the promoters of meme coin projects are not likely undertaking managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
The staff statement further cautions meme coin purchasers and holders that given the SEC will not retain oversight of the meme product, market participants will not be protected from deceptive activities under federal securities laws. By extension, private parties will not have a cause of action for misconduct or fraud under federal securities laws. Notwithstanding the pronouncement, merely labeling a product as a meme coin solely to disguise a security, the statement warns, is an attempt to evade the application of federal securities laws and subject to SEC enforcement.
Who will oversee market activity on behalf of consumers and speculators in meme coins is now an open question, although the staff expressed that fraudulent conduct may be subject to enforcement action or prosecution by other agencies under other federal and state laws.
The Commodities Futures Trading Commission (CFTC) has enforcement authority over manipulation and fraud in the spot commodities markets. It remains to be seen if the CFTC will assert that meme coins, generally fungible, are captured in the definition of a commodity and therefore within its supervision.
The release on meme coins is the first substantive shaping of the SEC’s digital asset policy since the January formation of the new Crypto Task Force, led by Commissioner Hester Peirce.
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