SEC Declares Memecoins Are Not Subject to Oversight

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.

To be fair, a cybertruck is also a collectible with "limited or no use."

"This is an ambiguous and poorly divided line with loopholes you can drive a burning cybertruck through."

Functions as designed.

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.

> 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.

I am against meme coins, but ruling them to be collectibles like a trading card makes sense to me. How is a meme coin different than a baseball card? What about a virtual baseball card or other virtual item from CSGO or World of Warcraft?

To bolster my point, one could face the same corruption issue we face today with baseball cards: Trump could own a limited-edition baseball card; foreign governments then could then buy all the other prints of the same card, lowering the supply and raising the demand of Trump’s collectible. One can thus see how anyone can use any collectible as a means to corruption in the same ways that meme coins can be used.

I am illustrating why the SEC ruling is not completely unfounded on first pass. However, I think meme coins have a higher chance of being used for scams (and corruption, but that is a separate point) because there is an implicit promise that this product will induce a return and because the coin is rarely an ends in itself. But how do you regulate people’s intention? You can’t read people’s minds and force people to not to buy a collectible for the sole purpose of making a return on investment. I think people would find it ridiculous to tell pawn shops to not buy a Pokémon card if the shop treated the item solely as a means to flip, for example. Moreover, such market participants are beneficial because they offer liquidity to more sincere buyers and sellers.

I am not sure what logically consistent and beneficial regulations around meme coins would look like, but with more thinking than I have been able to put into this topic, I am sure one could come up with some. My instinct is SEC regulating the tokenomics to maximize transparency and force the creators to release the tokens in a way that won’t allow them to “rug pull” would be a good starting point. I think I would not be opposed to such relegations in any collectibles market, making the regulations logically consistent.

Regarding the president of the United States, Jimmy Carter was forced to sell his peanut farm to avoid conflicts of interest. I think that anyone who becomes the president of the United States should have to liquidate their whole net worth — collectibles and all — and put it into an independent fund that they have no control over. They will then get a set percentage amount of money from this fund every year, and everything left over when they die goes to their presidential library. They are not allowed to take money from anywhere else ever again. That would fix this corruption problem for good and has the added benefit of deterring people from running who just want to use the office for their own personal gain.

It's used to transfer currency between accounts on fundamentally transparent ledgers. Barely any crypto involves anonymous anything.

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.

You can get paid to farm gold, I think. That's sort-of equivalent?

Personally I don't know of any MMOs that allow in-game currency to be 'cashed out', thats pretty much always a bannable offense

This is completely incorrect. There is a difference between:

(1) "PoopCoin" that is a copy paste of an existing cryptocurrency, repackaged with meme (!) marketing, and intentionally used for the creators to make quick money, and is bought ONLY for the purpose of flipping it for money.

(2) A serious cryptocurrency with a whitepaper, written by expert cryptographers, and serves a unique utility vs others, has a huge market cap, is used for real transactions.

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

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.

Why does that matter in this case?

Cryptocurrency is an object, it can't have any intent.

Rob Trump or a crony and I bet the rules of the game change fast.

These people do not have principles.

So do we blame Biden or Trump for delisting XRP, or is SEC respectably independent?

What about CFTC and FTC and the CAT Consolidated Audit Trail; are collectibles over 10K exempt from KYC and AML there too?

(By comparison, banks put days-long holds on large checks.)

My thoughts:

I suspect the folks who are interested in the cryptocurrency "ethos" as it was in the Bitcoin Whitepaper are not happy (although I think that ethos is exceptionally naive, I can at least respect it). I think they see the scams as real roadblocks to adoption and just a bad look / way to operate.

I do suspect that the vast majority of the crypto currency "community" are now just motivated by greed and/or other immoral activity like bribery, fraud, crime etc.

So yes I think some of the more thoughtful crypto community are disappointed .. but in reality much (in terms of dollars) of it really don't care.

cryptocurrency fans probably don't like it, since they are the ones going to be robbed and also have to listen to their friends complain about them encouraging them to be robbed, too.

the cryptocurrency industry love it and paid for it because it allows them to do unlimited crime against others with no consequences.

this isn't just a This Term Of Trump problem, either - letting these sociopaths get even richer now means they'll form a new layer of poison in the financial system for decades to come and have enormous influence regulation and politics.

> To them, it's a gamble the same as the as the lottery or sports betting. They know it has a negative expected value but they do it anyways because they find it fun.

Sports betting and lottery, while like gambling is legal in many states, is regulated.

Also, memecoins are unlike casino gambling, where there is a tiny chance of an outsider winning. That's where some of the "entertainment" in gambling comes from. In the case of sports betting there are also factors of chance outside the game that the game depends on. Again the adrenaline of betting on the unknown.

With memecoins, unless you are an insider, there is precisely 0 chance of winning. They are pure pump and dump schemes preying on the ignorant, or if the buyer is aware of how they work, they are no different from a bribery mechanism.

Being stupid isn't a crime, and shouldn't deserve punishment. Your intelligence is significantly influenced by things entirely out of your control, like your genetics and your childhood and schooling, so I've never understood this insistence that we allow people to take advantage of stupid people.