SEC Declares MemeCoins Are Not Securities, Clarifies Regulatory Position

• Memecoins are not securities, their value comes from market sentiment, not managerial efforts, per the SEC’s guidance.
• The SEC warns that memecoins, though unregulated as securities, remain risky and subject to fraud enforcement under other laws.
• Labeling a digital asset a “memecoin” won’t exempt it from scrutiny—its economic reality determines its regulatory status.

Stuart Alderoty, the chief legal officer at Ripple, commended the SEC for making it clear that memecoins do not grant ownership rights or the potential to make money in the future. Instead, they derive value from market sentiment rather than managerial efforts. Therefore, they do not pass the test of an investment contract under the Howey test.

SEC’s Position on MemeCoins

The SEC defines memecoins as crypto assets inspired by online trends, memes, or cultural phenomena. Their primary goal is amusement, social interaction, and speculation. Additionally, the SEC notes that memecoins do not generate yields or entitle holders to business profits. Unlike traditional financial instruments such as stocks or bonds, these digital assets rely solely on market-driven demand.

Furthermore, the SEC asserts that memecoins do not involve pooled funds managed by third parties. This distinction is critical under securities law. A transaction is classified as an investment contract based on the Howey test. 

It evaluates whether money is invested in a joint venture with a realistic prospect of earning money from the labor of others.. Memecoins fail to meet these criteria, as their value is dictated by speculative trading rather than managerial contributions.

Implications for Investors and Market Participants

Since memecoins are not securities, they are not required to be SEC registered. Nevertheless, investors should be cautious since memecoins are very volatile. The SEC warns that memecoin fraud is still prosecutable under other laws. That is, federal and state agencies can pursue enforcement actions against the scams.

Moreover, the SEC highlights that some digital assets labeled as memecoins may attempt to evade securities laws. Each asset will be assessed based on its economic realities rather than its label. Consequently, promoters cannot bypass regulations by merely branding their projects as memecoins.