SEC declares meme coins not subject to federal securities laws

The Securities and Exchange Commission (SEC) has announced that meme coins are not considered securities and are therefore exempt from the federal laws governing financial instruments.

In its official statement, the agency compared meme coins to collectibles, noting that their value is derived primarily from speculative trading and the collective sentiment of the market.

According to the SEC, meme coins do not generate a yield or confer rights to future income, profits, or assets of a business. As a result, transactions involving these crypto assets do not meet the definition of investment contracts and are not subject to the registration requirements mandated by the Securities Act. While buyers of meme coins do not benefit from the protections provided by securities laws, any fraudulent transactions involving these assets could still be pursued under other federal or state statutes.

The SEC further explained that, for a crypto asset to be classified as a meme coin, it must be inspired by internet memes, characters, current events, or trends and primarily purchased for entertainment, social interaction, or cultural purposes. Meme coins are characterized by limited or no use or functionality and tend to experience significant market price volatility. However, the commission warned that crypto assets labeled as meme coins in an effort to evade regulation would still be considered securities if they do not fit this definition.

This decision aligns with the SEC’s recent shift toward a more accommodating stance on cryptocurrency. Earlier this month, the commission concluded an enforcement case against Coinbase over allegations of operating an unregistered securities exchange and dropped an investigation into Robinhood’s crypto listings and sales, reflecting a broader regulatory trend under the current administration.

The SEC stated that while it will not regulate meme coins as securities, it remains committed to evaluating the economic realities of transactions involving these assets. The agency’s approach underscores the evolving landscape of digital asset regulation as lawmakers and regulators continue to grapple with the rapid innovation and market dynamics of the crypto industry.

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