SEC Declares Memecoins Are Not Subject to Oversight
91 comments
·February 28, 2025ano-ther
terminalbraid
Unless "purchasing" and "paying for" are no longer forms of "social interaction" (i.e. interacting with society), I'm not sure how this differentiates it from literally any financial instrument, fiat included. This is an ambiguous and poorly divided line with loopholes you can drive a burning cybertruck through.
skybrian
US Courts use the Howey Test to decide what counts as a security:
* It is an investment of money
* There is an expectation of profits from the investment
* The investment of money is in a common enterprise
* Any profit comes from the efforts of a promoter or third-party
https://www.findlaw.com/consumer/securities-law/what-is-the-...
If you read further in the SEC statement, they explain why typical meme coins fail the Howey Test.
> [T]he promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.
They should probably be regulated as a gambling game, though, and can sometimes be used as money laundering or bribery, as a way to pay the original sellers without revealing what they’re really paying for.
hiq
> If you read further in the SEC statement, they explain why typical meme coins fail the Howey Test.
That's basically a circular definition of what a memecoin is, and doesn't encompass a lot of the tokens that have been created so far, especially if you weight them by their market cap. In other words, it doesn't cover the most relevant tokens (which you would still call memecoin without this new (re)definition).
jerf
Yeah, basically the SEC is saying "the idea that anyone would make money on these is so self-evidently ludicrous that they can't even be considered securities, so they don't fall under our purview".
However, kicking them out under that legal theory doesn't mean that there's no other way to stop them. I'd say it just got a lot easier to prosecute anyone pitching a memecoin as a way to "get in on crypto" and make money just got a lot easier under the much less exotic legal theory of plain and simple fraud.
(Sometimes we ask for too many specific laws specifically outlawing this or that when all we really need is good ol' fashioned "fraud"; you said X to entice someone to buy a thing and X is a lie, here comes the hammer.)
I'm quite sympathetic to the SEC here. Theories about how BitCoin may gain or lose value, or the Ethereum chain or other contract chains, are one thing, but when the value proposition of a coin starts and ends with "It's named after a celebrity!", that's just so much vaporous nothing.
calibas
From Wikipedia regarding the Trump meme coin:
> A disclaimer said that the coin was "not intended to be, or the subject of" an investment opportunity or a security and was "not political and has nothing to do with" any political campaign, political office or government agency.[6] The terms of the offering prohibit coin buyers from joining any class-action lawsuits against the project and assert indemnity against any claims.[8] Trump promoted the coin on the night of its ICO while a "Crypto Ball" was underway.[9]
> After its launch, its price soared by over 300% overnight.[10] Within two days, it became the 19th most valuable form of cryptocurrency in the world, with a total trading value of nearly $13 billion, and a total of $29 billion worth of trades based on a $64 value of each of the 200 million tokens issued by the afternoon of January 19th. The New York Times reported that Trump affiliates controlled an additional 800 million tokens that, hypothetically, could be worth over $56 billion, potentially making Trump one of the richest people in the world at an estimated net worth of $63.8 billion.[11] On January 19, 2025, Trump's wife Melania launched her own meme coin, $Melania.
So the promoter of the meme coin, Trump, could not reasonably expect a profit? And because of this, he can make billions overnight on cryptocurrency without being subject to SEC regulations?
Anybody who wants to bypass SEC regulations just needs to base their cryptocurrency on a meme and claim no expectations of profits...
Edit: I'm wrong about the expectation of profits part. It's assumed that the purchaser should have no expectations of profits.
So the promoter essentially just need to claim the cryptocurrency is a joke to not be subject to SEC regulations.
brk
"This is an ambiguous and poorly divided line with loopholes you can drive a burning cybertruck through."
Functions as designed.
ethbr1
To be fair, a cybertruck is also a collectible with "limited or no use."
sidewndr46
But is still subject to a significant degree of oversight
tim333
I think the main difference is whether they are being sold as having some value behind them or not. You buy shares in Theranos or Enron and find it's a fraud you have a right to be pissed off and complain the SEC isn't doing it's job. You buy fartcoin and really you can't complain to anyone because there was no expectation of anything there.
desumeku
"That makes sense, but isn’t quite supporting the crypto-world’s preferred narrative."
What gives you that impression? This article is about memecoins, not 'real' cryptos like ethereum or bitcoin.
ForTheKidz
> 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.
This reads to me like "we won't treat your crypto like a security if you tie it to pop culture". Intent in purchasing crypto for novelty purposes doesn't change what it is or how people will use it.
adastra22
Memecoins fail the Howey test, so they are not securities. App coins pass the Howey test, so they are securities. It's not complicated.
empath75
I think as long as anybody promoting a meme coin uses an appropriate disclaimer, it's probably a reasonable decision. The problem is going to be that nobody is going to enforce people making fraudulent claims about meme coins because they're gutting the SEC.
The interesting thing about corruption and frauds like this is that when people get conned and lose everything, they don't get angry at the person that stole from them, they get angry about the people that called out the fraud or enforced regulations meant to protect them from losing more money.
dyslexit
This opens the door for fully legalized bribery. Which is already happening. The SEC recently asked a judge to halt its own investigation into Justin Sun for fraud after he bought $75 million worth of Trump's WLF coin, $56 million of which went directly to Trump, immediately after the election. The case now will likely get dropped completely.
What's to stop foreign governments from doing the same thing, if they aren't already?
https://www.motherjones.com/politics/2025/02/sec-fraud-prose...
https://www.bloomberg.com/news/articles/2025-02-26/justin-su...
desumeku
This title is misleading. "Not a security" does not mean "no oversight".
> “Although the offer and sale of memecoins may not be subject to the federal securities laws, fraudulent conduct related to the offer and sale of memecoins may be subject to enforcement action or prosecution by other federal or state agencies,” said the statement, from the S.E.C.’s division of corporation finance.
rtkwe
Title is accurate, SEC talking about Oversight just means SEC Oversight they just speak for themselves.
tripplyons
I think it only refers to there being no more oversight from the SEC.
danielvf
The headline currently shown here "SEC Declares Memecoins Are Not Subject to Oversight" is wrong, which is throwing discussions off here.
The actual decision is that memecoins are not "Securities", and therefor not subject to regulations that apply to Securities. This makes a lot of sense.
If you pick up a cool rock off the ground, and just sell it to someone, it's not a security. If people are buying and selling wheat, it doesn't make wheat a security.
As skybrian said, the US test for a security is the Howely test.
* It is an investment of money * There is an expectation of profits from the investment * The investment of money is in a common enterprise * Any profit comes from the efforts of a promoter or third-party
Memecoins don't fit it at all.
this_user
I think even trying to regulate the crypto sector is a mistake, because it legitimises something that serves virtually no useful purpose and makes people think that crypto is a real asset class rather than just a huge casino.
Therefore, my counter proposal is that crypto should simply be treated as a PVP-enabled MMO.
rco8786
Whether it serves a "useful" purpose or not has no bearing on its legitimacy. It's used to transfer massive amounts of currency between anonymous accounts. It's exactly the sort of thing that needs to be regulated.
Yizahi
It's reverse in my opinion. Tokens used for illegal stuff at first get into the finance sector if there is no oversight, e.g. banks start holding them, exchanges use them etc. Then when the government asleep at the wheel (or complicit) finally awakens it is too late to ban them as it was required by law in the first place and they are deemed "too big to fail". That's why even under Dems SEC was afraid to classify BTC and ETH as illegal securities and went only after smaller fish (an even that has failed).
If oversight was real and SEC investigated tokens earlier, they would have outlaw them way back then (translation - would have made all tokenbros comply with laws, thus rendering whole scheme worthless) and tokens wouldn't entrench as deep as they are now.
desumeku
If only you knew that the end-game of crypto billionaires is to secede from society and use cryptocurrencies and blockchains as the foundation for an alternative parallel financial system that sucks its competitor dry. If you really hate crypto, that would just be giving them what they want with roses and a nice letter.
And, just to say, that is exactly what the new administration is planning on doing.
lukev
What does this actually mean?
Most MMOs don't let you convert your in-game currency back to real-world money. For those that do, is there actually a regulatory framework around that?
vharuck
PvP MMOs tend to all have a similar make-up of players. At the top are the elite griefers prey on noobs, and beside them are the elite duelists who challenge each other. The griefers and duelists don't interact too much. Below them are the middle-skill players. They have enough fun to keep playing, but lose more than they win; they put serious effort into becoming an elite. At the bottom are the noobs, who join with dreams of making it big (some may), but mostly serve as cattle for other players. A lot of the noobs will get discouraged after repeated ganking and leave the game.
The game only thrives if there's a steady stream of new players to replace the numerous quitters. If there aren't enough, the middle-skilled will become the new bottom and start losing way more often. So they'll start quitting. When enough of them do, the griefers won't have as much fun and will leave. That just leaves the duelists in an otherwise empty world. It's not as fulfilling to say you're the best fighter in a dead game.
Then a new PvP MMO appears. Everyone is new, so the griefers aren't yet overpowered. New players flock to it. Eventually, the duelists from the first game see another game with a much more vibrant community. So they'll go there.
The parallels with crypto actually make sense.
DanHulton
You know, a little off-topic, but that sounds _exactly_ like the online poker boom.
robertlagrant
You can get paid to farm gold, I think. That's sort-of equivalent?
cheeseomlit
Personally I don't know of any MMOs that allow in-game currency to be 'cashed out', thats pretty much always a bannable offense
15155
Second Life has operated the Lindex service for more than a decade.
anothereng
"no useful purpose" then you havent done your research
whynotmaybe
What is the difference between a memecoin and crypto currency?
Yizahi
The level of fear of the SEC chairman. They were afraid to classify all tokens as securities because BTC and ETH were too big by then, thus created this meaningless distinction. In real life there is no difference except number of users.
danielvf
A meme coin is a subset of crypto currency stripped down to remove everything but belief or lulz.
There is no "utility" (the coin is not used to run some crypto system).
It's not attached to something that earns profits.
It's not even expected to retain value.
It's essentially a global apples to apples game. Those who are best at recognizing ahead of time what everyone else will find funny, get more money. In theory.
tripplyons
A memecoin is a type of cryptocurrency, but not all cryptocurrencies are memecoins.
drpossum
Memecoins are also "collectable" and for "social interaction" without "expectation of profit but you can get profit as long as you say the magic words that it's not expected" whereas cryptocurrency is "accumulated" and used for "payment that isn't technically social interaction" and you can "expect profit and you can say you expect it". I hope that's clear
desumeku
Intent.
ForTheKidz
Why does that matter in this case?
desumeku
I also wanted to say "function", because the main distinguishing factor is that 'real' crypto assets are designed to perform some economic or financial purpose whilst memecoins are not.
from-nibly
Cryptocurrency is an object, it can't have any intent.
desumeku
This may be news, but most objects are made by people, who are quite capable of having intent.
avs733
I think a way to look at it, from an SEC trying to do their job in a pragmatic manner, is 'a crypto currency is likely to be run by professionals, a memecoin is likely to be run by teenagers'.
SEC deals with oversight and regulation actions/cases against obstinant defendants all the time. That is hard because those folks know the law.
Trying to deal with a teenager or influencer who doesn't even have a concept of the securities law is not something they do regularly. It doesn't fit with their system of function, and would likely become an absolute doom spiral of wasted time and distracted effort. Imagine trying to do a deposition where every other response is 'skibidi'. Even if it worked what are they going to collect or recover? Other meme coins?
In short: Setting aside the fundamental logic of this position, the SEC is built to battle with Bobby Axelrod, not Huawk Tua girl and those are fundamentally different skillsets.
whynotmaybe
Just like the SEC handles stock exchange fraud and not door to door snake oil fraud ?
I guess that since some memecoins are now handled by high visibility people, the amount of fraud will soon be higher than securities fraud, especially since no entity deals with it.
krapp
Realistically, it's whether Elon Musk or Donald Trump have an interest in it.
internetter
Crypto shouldn't be regulated. It's explicit purpose is to bypass the regulation overhead of fiat, stick it to the man so to speak. The fallout of things like FTX is a natural consequence of the crypto community's wishes and the government stepping in to bailout and prosecute is contrary. FAFO imo.
fourside
Nothing says “stick it to the man” like having heads of state and some of the wealthiest people on the world be heavily invested and doing business with crypto.
tim333
Thing with FTX is it was sold as a regular investment via superbowl ads etc.
I'm not sure it needs special regulations, different from those for buying and selling used cars, beanie babies etc. but should still be subject to basic stuff like don't steal your clients money.
hiq
What do we do if crypto becomes important enough such that events such as FTX downfall have an impact on non-crypto activities?
duxup
Considering the Trump profited from his own meme coin this just seems like more cronyism / self dealing and so forth …
Meme coins seem like the perfect bribery system.
floatrock
Correct.
In the past we had to offload palettes of cheap Chinese-printed bibles or guilded sweatshop sneakers for the illusion of "selling collectibles".
Now we can skip the pretense of all that nasty physical-world foreplay and get straight to the cash. Need to grease the wheels of whatever deal you want to score with the US? Just drop a few MM onto some glorified digital pokemon cards. Not enough liquidity? Oh don't worry, the family-owned reserve spigot's about to open up with an announcement of The Greatest Coindrop of the month.
And now you need not be concerned about the SEC snooping around at your preference of pokemon card or who is buying them.
We've just made government corruption far more efficient.
outside1234
There are no principles here people. They were bribed and are delivering.
null
exabrial
What a win! Next, we should make progress on crypto is a security (A self fulfilling prophecy).
thrance
With the president & his wife running their own cryptoscams, how could the ruling have been any different? Is anyone surprised by this outcome?
They treat them as collectibles with ”limited or no use.“ That makes sense, but isn’t quite supporting the crypto-world’s preferred narrative.
> Although individual meme coins may have unique features, meme coins typically share certain characteristics. 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.
https://www.sec.gov/newsroom/speeches-statements/staff-state...