The Memes Are OK: SEC Determines Meme Coins Do Not Meet Securities Definition

TLDR

• SEC announced that most meme coins do not qualify as securities under federal law
• Meme coins lack yield generation or rights to profits/assets, failing key Howey Test requirements
• Transactions in meme coins don’t involve pooled investments or reliance on promoters’ efforts
• The guidance comes amid increased attention to meme coins from political figures like Trump and Argentina’s Milei
• While exempt from securities laws, fraudulent meme coin activities may still face prosecution under other regulations

The Securities and Exchange Commission (SEC) has officially declared that meme coins generally do not qualify as securities under federal law.

The announcement, made on Thursday, February 27, 2025, marks a key clarification for the cryptocurrency market and could have major impacts on how these digital assets are regulated.

In its statement, the SEC’s Division of Corporation Finance explained that meme coins—cryptocurrencies based on internet jokes, memes, and current events—typically don’t meet the legal definition of securities. This means creators and sellers of these tokens won’t need to register with the SEC or follow securities regulations.

The regulator applied the Howey Test, which courts use to decide if something counts as an investment contract. Under this test, meme coins fail to qualify as securities because they don’t involve pooled investments or depend on promoter efforts to generate profits.

“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 wrote in its guidance. This marks a shift from the agency’s previous approach to crypto regulation.

The SEC pointed out several reasons why meme coins don’t fit the securities definition. These digital assets “do not generate a yield or convey rights to future income, profits, or assets of a business,” unlike stocks, bonds, or other traditional securities.

Meme coins get their value mainly from market demand and speculative trading. Their prices move based on public interest and trading activity rather than business performance or management decisions.

The first and most famous meme coin, Dogecoin, remains the largest by market value. However, thousands of similar tokens have flooded the market in recent years, creating both opportunities and risks for investors.

These coins have attracted attention from high-profile figures. President Donald Trump’s team launched a Solana-based meme coin called TRUMP before his January inauguration. The token initially surged in value but has since dropped nearly 83% from its peak, now trading at $12.60 according to CoinGecko.

Argentina’s President Javier Milei also promoted a meme coin on social media earlier this month. His actions led to fraud charges, with a judge investigating claims that investors were scammed after the president’s endorsement.

Don’t do Fraud Though…

The SEC clarified that while most meme coins aren’t securities, any fraudulent activities related to them could still face legal consequences. Other federal or state agencies may take action against scams even if the SEC doesn’t have jurisdiction.

The regulator also warned it would watch for assets falsely labeled as meme coins to avoid securities laws. Products that don’t match the characteristics outlined in the guidance will still face SEC scrutiny.

This new position from the SEC comes during a time of changing crypto regulation under the Trump administration. The agency has already dropped several high-profile crypto lawsuits and investigations that were initiated under former Chair Gary Gensler during the Biden administration.

Democrats have proposed legislation called the MEME Act that would prevent Congress members, the president, and their families from promoting meme coins. The bill aims to address concerns about potential conflicts of interest when government officials endorse speculative assets.

Meme coins are known for extreme price swings, sometimes making investors huge gains but often leading to devastating losses. Their value depends largely on community engagement and social media buzz rather than underlying utility.

For buyers, the SEC’s decision means less protection under federal securities laws. While this may allow for more innovation and fewer regulatory hurdles, it also means investors must be extra careful when putting money into these speculative assets.

The announcement represents a more relaxed regulatory approach to certain crypto assets under the new administration. Industry participants have long argued that not all digital assets should be treated as securities, and this guidance seems to support that view for at least one category of tokens.