Introduction to Meme Coins

Meme coins are not considered securities, and therefore, they are not subject to federal laws that regulate financial instruments, according to the Securities and Exchange Commission (SEC). The SEC has officially stated its stance on meme coins, likening them to collectibles since their value is derived from speculative trading and market sentiment.

Definition and Characteristics of Meme Coins

The SEC notes that meme coins do not fit the definition of securities under the law because they do not generate a yield or convey rights to future income, profits, or assets of a business. Individuals who purchase meme coins are not considered to be investing in an enterprise, which means they are not entering into "investment contracts" that are classified as securities. As a result, sellers of meme coins are not required to register their transactions with the commission under the Securities Act.

Regulatory Implications

Buyers of meme coins are not protected by securities laws, but this does not mean that fraudulent transactions involving meme coins will go unpunished. Any fraudulent activity related to meme coins could still be subject to enforcement action under other federal and state laws. The Trump administration’s SEC has been demonstrating a more favorable attitude towards the cryptocurrency industry. Recently, the SEC agreed to end an enforcement case against Coinbase, which was accused of operating an unregistered securities exchange. Additionally, the commission dropped an investigation into Robinhood, which faced charges of violating securities laws with its crypto listings and sales.

Evaluation and Regulation

Although the SEC will not regulate meme coins, it will still assess the "economic realities" of suspicious transactions involving these coins. To be considered a meme coin, a crypto asset must be inspired by internet memes, characters, current events, or trends, and purchased for entertainment, social interaction, and cultural purposes, with its value driven primarily by market demand and speculation. Meme coins typically have limited or no use or functionality and experience significant market price volatility. If a crypto asset is labeled as a "meme coin" in an attempt to evade regulations but does not fit this definition, it may still be considered a security.