US Securities and Exchange Commission (SEC) regulators on Thursday published a final statement regarding whether meme coin holders can expect the same protections under federal security laws as holders of other crypto asset securities.
Meme coins have their place in pop culture, we have Elon Musk’s infamous Dogecoin, the Shiba Inu coin, Grimace coin, a Pepe (the Frog) coin, hey, even President Donald Trump and the First Lady got in on the action releasing their own $Trump MAGA and $Melania coins this January.
But what has this meant for the thousands of folks hoping to cash in on the wild rides that accompany many of the hyped up coin launches – and at times massive sell offs.
Well, according to the staff of the SEC’s Division of Corporation Finance, it's official, the volatile crypto asset will not be considered a security investment by regulators, does not need to be registered with the Commission, and, therefore, meme coin purchasers and holders are not protected by any federal securities laws.
The Division's explanation, posted on the SEC website on Thursday, defined meme coins as crypto assets “inspired by internet memes, characters, current events, or trends, and typically purchased for entertainment, social interaction, and cultural purposes.”
The SEC further states that meme coins, in most instances, have limited use or no functionality and are primarily used by promoters to drum up excitement for a specific themed coin, and to get people to buy it and engage in trading.
“Given the speculative nature of meme coins, they tend to experience significant market price volatility, and often are accompanied by statements regarding their risks and lack of utility,” the SEC said.
Labeling meme coins as more of a “collectable” than an actual investment, the statement explained that a meme coin’s purchasers and/or holders rarely expect to make profits off of meme coins from the “managerial efforts of others,” unlike other crypto investments.
And the SEC is correct, of the top 100 meme coins on the market today, most coin prices range between 0 to 60 cents.
Even the number one Dogecoin is only worth 20 cents according to the Meme Market Cap as of Friday, February 28th, listed by Forbes. To note, there was one anomaly on the list, number 76, the “Doge Killer” meme coin by LEASH priced at $142.66.
“The value of meme coins is derived from speculative trading and the collective sentiment of the market,” it said.
Meme coins still subject to other oversight
The SEC did, however, highlight the fact that even though meme coins are not beholden to the same federal security laws as registered crypto assets, other US federal and state agencies can still go after those who engage in fraudulent conduct when offering or selling the unique coins.
This falls in line with some of the investigations launched by the Commission in the past several years, the most publicized being a 2021 investigation and subsequent lawsuit against Elon Musk over charges of market manipulation and defrauding investors.
In what regulators called “a Dogecoin pyramid scheme,” the SEC accused Musk of falsely hyping up his followers on social media to buy up the Dogecoin, artificially inflating its value, reputation, and price. Investors who bought into the sham, eventually lost their money when the coin eventually crashed.
Other meme coin schemes that have made headlines in 2024 include, a meme coin pump and dump crash courtsey of the “Hawk Tuah” girl, a $700 million Grimace coin McDonald’s hack n’ promotional stunt gone wrong, and the hack of Doja Cat’s X account to push a scam coin in her name costing investors $1.6 million.
It was also noted that attempting to pass off a crypto asset as a meme coin to avoid being subject to federal security laws would also be subject to prosecution.
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