According to Kraken, a cryptocurrency platform, the aggregate market capitalization of all meme coins currently exceeds $70 billion. If considered startups, five meme coins would be valued as unicorns, each boasting a market capitalization greater than $1 billion.
Dogecoin alone holds a market capitalization of $35 billion. The popularity of meme coins has attracted the attention of social media influencers, celebrities, and even high-profile politicians, many of whom have launched their own meme coins or endorsed existing ones. Notable figures involved include Caitlyn Jenner (JENNER), Iggy Azalea (MOTHER), and Donald Trump (MAGA).
Meme coins, however, are not backed by any real-world assets, not even virtual ones. Often originating as internet jokes or trends, they serve as vehicles for speculative gambling rather than possessing any inherent utility. Due to the speculative nature of meme coins, significant market price volatility is typical. This naturally raises the question: are meme coins securities?
The answer, according to a staff statement released by the Securities and Exchange Commission’s (SEC) Division of Corporation Finance on February 27, 2025, is generally no. The statement begins by defining “meme coins” as crypto assets inspired by memes, characters, current events, or trends, with promoters aiming to attract enthusiastic online communities to purchase and trade the coin. These coins are typically bought for entertainment, social interaction, and cultural purposes, with their value primarily driven by market demand and speculation. As such, they resemble collectibles.
Meme coins frequently have limited or no use or functionality and come with warnings about their risks and lack of utility, except for non-functional purposes like entertainment. The statement subsequently considers whether meme coins of that type are investment contracts, using the Howey test.
The Howey test determines if a financial instrument or arrangement qualifies as an investment contract—and therefore a security—if it involves investing money in a common enterprise with the expectation of earning a profit through the efforts of others.
The SEC staff’s analysis contends that purchasers of meme coins are not investing in a collective venture because their funds are not pooled together for development by promoters or other third parties. The staff asserts that meme coin purchasers’ expectation of profits, if any, hinges on speculative trading and market sentiment, just as with collectibles, not from the efforts of others. Furthermore, promoters of meme coins do not undertake any managerial or entrepreneurial efforts that would lead purchasers to reasonably expect profits.
Consequently, the SEC staff concluded that the offer and sale of the described meme coins don’t involve an investment in an enterprise. Nor are they purchased with the expectation of deriving profits from the entrepreneurial efforts of others. Therefore, the staff believes they do not constitute investment contracts and are not securities.
Several practical observations arise from this.
First, the SEC staff’s decision is perhaps not surprising given that both former President Donald Trump and Melania Trump issued their own meme coins shortly before their inauguration. Secondly, while the statement may seem like a significant shift from the SEC’s crypto asset enforcement stance during the previous administration, two factors could mitigate its impact. The strong argument that pure meme coins differ from crypto currencies under the Howey test and thus can’t be considered securities has been made for some time. The statement offers helpful guidance in this regard.
It is important to note that the SEC’s position stated in the statement does not pertain to tokens that are inconsistent with the description of meme coins, or to products that are labeled as such to avoid federal securities laws by disguising a product that would otherwise constitute a security. The staff will examine each transaction’s economic realities. Third, even if a meme coin doesn’t meet the Howey test and isn’t protected by securities laws, a purchaser could still seek damages under common law theories of fraud and breach of contract.
Finally, it’s crucial to note that staff statements aren’t rules or regulations and lack legal force, although they do give helpful insight into SEC enforcement policy. The statement indicates that the SEC will not pursue actions against issuers of the specific type of meme coins it describes in the statement, nor against exchanges offering a trading market for these coins. The SEC’s views are subject to future evolution.
Disclaimer: The material in this article is intended to provide a general guide about its subject matter. You should seek advice from a specialist regarding your specific circumstances.
