SEC Declares Memecoins Non-Securities, Likens Them to Collectibles

The U.S. Securities and Exchange Commission (SEC) has officially declared that memecoins do not fall under its regulatory purview, likening the burgeoning crypto sector to "non-functional" collector's items. In a new statement, the SEC has confirmed that memecoins are not considered securities.

According to the SEC's statement, a "meme coin" is a type of crypto asset inspired by internet memes, characters, current events, or trends, for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading. The SEC argues that memecoins are more like collectibles and entertainment items than securities.

The SEC's stance is based on the Howey test, a litmus test for deciding whether or not something is a security. According to the SEC, memecoins fail this test because:

• Meme coin purchasers are not making an investment in an enterprise, as their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.
• Any expectation of profits that meme coin purchasers have is not derived from the efforts of others. Instead, the value of memecoins is derived from speculative trading and the collective sentiment of the market, similar to a collectible.

The SEC's official statement echoes comments made by Commissioner Hester Peirce earlier this month, who cautioned investors not to assume that there would be an SEC regulatory backstop for all popular crypto assets.

The statement comes amidst an overhaul at the regulatory agency, which includes the consolidation and creation of a new crypto task force, the Cyber and Emerging Technologies Unit (CETU). Last week, the SEC also dropped several high-profile investigations, including inquiries into Coinbase, Robinhood, OpenSea, and MetaMask.