Memecoins Are Not Securities - SEC Statement

With Solana’s meme economy dominating international headlines and stoking controversy across the planet, the SEC has issued a timely statement describing its views on memecoins.

In an unexpected twist, the SEC declared memecoins have “limited to no use” and are closer to collectibles than securities.

With the scruntinous eyes of the federal agency turning away from memecoins, can Solana’s trench warriors expect renewed attention and liquidity flows?

“Memecoins Have Limited or No Use”

On February 27, the SEC issued an eagerly awaited statement outlining its views on memecoins, crypto’s most controversial sector. 

“Meme coins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, meme coins are akin to collectibles. Meme coins also typically have limited or no use or functionality.” - United States SEC

According to the SEC, memecoins cannot be classified as securities and are therefore not subject to securities law and regulation. The SEC reasons that memecoin purchasers are not making an investment in an enterprise, nor does the underlying asset generate yield or convey rights to future income.

After applying Howey Test rulings, regulators asserted that memecoin investors are not seeking profits through “the entrepreneurial or managerial efforts of others”. 

In the space of a few months, the SEC has gone from crypto’s greatest foe to its closest ally. The SEC’s memecoin statement comes following a wealth of crypto-positive moves from the federal agency, which is desperately seeking to repair the legacy left by former Chairman Gary Gensler.

Trump’s SEC has demonstrated its eagerness to work alongside crypto companies to bolster blockchain innovation in the United States. Alongside an executive order detailing the Trump Administration’s plans for the industry, critical lawsuits that threatened the crypto space have been scraped.

Fraud Is Still Fraud

The SEC’s statement brings much-needed clarity to the memecoin sector, but it also draws a line in the sand for traders. In true “F*ck around and find out” style, the SEC asserted that memecoin traders will not be protected by securities laws in they find themselves in a sticky situation.

“Neither meme coin purchasers nor holders are protected by the federal securities laws.”

While this may sound like the SEC is washing its hands of memecoins and promising to turn a blind eye to the sector, the statement issues a distinct warning to malicious actors who might abuse the system.

“Although the offer and sale of meme coins may not be subject to the federal securities laws, fraudulent conduct related to the offer and sale of meme coins may be subject to enforcement action or prosecution by other federal or state agencies under other federal and state laws.”

Despite not being formally recognized as securities, bad actors who abuse memecoins as a vehicle to commit fraud will still be subject to enforcement action and prosecution. In other words, market manipulation and insider trading are still incriminating offences with severe consequences.

Additionally, securities that call themselves memecoins in an attempt to beguile regulators will still be treated as securities.

Will Memecoins Reclaim Attention and Liquidity Flows?

Solana’s trench warriors are thrilled with the SEC’s new position of memecoins. With greater clarity around how the asset class will be regulated, traders are anticipating the continuation of the fabled memecoin supercycle.

However, not everyone shares this view.

https://x.com/hosseeb/status/1895256049302606221]

Dragonfly Capital Managing Partner Haseeb Qureshi argues that the arrival of regulatory clarity could spell the end of the memecoin circus.

Memecoin markets have been slow to react to the SEC’s announcement. However, fearful market conditions aren’t favorable for memecoins, which are typically considered risk-on assets. Onchain trading volumes remain low, suggesting participants are waiting for better market dynamics before diving back into the trenches.

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