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Meme coins are a big deal now that they've become billion-dollar scandals, and the crypto industry's reputation is at risk as the meme coin frenzy grows.
A meme coin, often celebrity-backed, follows the same pattern: it skyrockets before crashing, burning investors every time, with only the insiders making money. Look at what happened in recent months with meme coins associated with Donald Trump, Melania Trump, Dave Portnoy, Argentina/Javier Milei, Hailey Welch/"Hawk Tuah girl," and others.
Now, the Division of Corporation Finance staff under the US Securities and Exchange Commission has said that meme coins do not constitute a security offering or sale that would violate federal securities laws.
"As such, persons who participate in the offer and sale of meme coins do not need to register their transactions with the Commission under the Securities Act of 1933 ('Securities Act') or fall within one of the Securities Act's exemptions from registration. Accordingly, neither meme coin purchasers nor holders are protected by the federal securities laws."
The SEC finally clarified that most meme coins are not securities. According to the agency's Division of Corporation Finance staff, meme coins "typically have limited or no use or functionality" and are "more akin to collectibles."
The statement said, "A meme coin does not constitute any of the common financial instruments specifically enumerated in the definition of 'security' because, among other things, it does not generate a yield or convey rights to future income, profits, or assets of a business. In other words, a meme coin is not itself a security."
The SEC staff note said several financial instruments, such as "stock," "note," and "bond," are defined as "security" in the Securities Act for several reasons, including the fact that it does not provide a return or grant access to a company's future earnings, assets, or revenue, a meme coin does not qualify as a "security" under the financial instruments definition.
Meme coins are not securities in and of themselves and, as such, cannot be "investment contracts."
The SEC staff referenced the Howey test to come up with that. The staff noted that when assessing the financial aspects of a deal, the Howey test looks at whether or not someone put money into a business with the idea that they will make a profit through the management or entrepreneurial efforts of others
The statement said whenever "the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise," and federal courts have stated that this constitutes the "efforts of others" necessary to satisfy Howey's "efforts of others" requirement.
Clearly, the SEC is also eyeing meme coins under a pro-crypto administration as a threat to the digital assets industry.
The clarification follows the recent surge in memecoins since President Donald Trump's election, along with their decline in recent weeks.
This represents another achievement for the new administration, which has pledged to establish more transparent and potentially advantageous regulatory conditions for the cryptocurrency sector and to expedite this process.
In January, during the peak of the Trump-induced meme frenzy, Coinbase CEO Brian Armstrong on X stated, "We need to rethink our listing process at @coinbase given there are ~1m tokens a week being created now, and growing. High quality problem to have, but evaluating each one by one is no longer feasible."
We need to rethink our listing process at @coinbase given there are ~1m tokens a week being created now, and growing. High quality problem to have, but evaluating each one by one is no longer feasible. And regulators need to understand that applying for approval for each one is…
— Brian Armstrong (@brian_armstrong) January 26, 2025
But the real question is—does the meme coin craze undermine the legitimacy of the crypto industry, which is seeing wider acceptance and is now worth about $3 trillion?
Argentina and the cryptocurrency community are still reeling from the most recent meme coin controversy.
In the first hour after its release, the value of Libra, a meme coin advocated by President Javier Milei of Argentina, surged to $4.5 billion. However, the excitement did not last.
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Investors were left reeling when the token plummeted by 80% in a matter of hours.
The repercussions have been dramatic. Milei is currently the subject of numerous investigations for his role, and attempts are being made to impeach him.
This happens all the time.
Once a strange mashup of internet culture and money, meme coins are now dangerous speculative investments. Although a few early investors profit, most lose a lot of money.
Nearly all memecoins endorsed by celebrities have seen a price drop of more than 99% from their peak, according to data from CoinGecko.
More than 10,000 cryptocurrencies are in use today, and a rising portion of that number are meme coins, which frequently lack any genuine support or practical use. These speculative tokens are drawing attention away from legitimate blockchain initiatives. Platforms like pump.fun have rapidly grown in popularity, speeding up the trend.
This low-code launchpad has fueled a slew of dubious initiatives, enabling users to manufacture meme coins with minimal effort.
What is the outcome?
With schemes involving the "pump and dump" method, in which retail investors are lured in before the early adopters profit at the expense of the rest of the market, lawmakers are paying even greater attention in Washington.
The recent creation of $TRUMP, followed by a similar action by Melania Trump ($MELANIA), has prompted much scrutiny.
Proponents of cryptocurrency worry that these plans could thwart efforts to define digital asset rules finally. ETFs backed by cryptocurrencies like Bitcoin and Ethereum are quickly becoming a mainstay on Wall Street. The sector faces a critical juncture as memecoin collapses, causing billions of dollars in losses. Stablecoins and other significant projects are making strides in the payment system,
Concerns among both investors and regulators over meme coin speculation have been growing. According to VC investors, meme coins portray the cryptocurrency sector as a "value-extracting industry" instead of a place where genuine innovation can take place.
One possible tipping point is the Libra scandal.
Crypto industry insiders request more regulations to distinguish between reputable and speculative projects as regulators plan new frameworks.
Will the increasing number of high-profile failures eventually force the crypto business to improve its practices?
Meme coins, which are in the thousands, represent the highest level of risk.
When adjusted for market capitalization, they are three to four times more actively traded than Bitcoin and Ether, rendering them attractive options for novices who believe they have missed the opportunity with the two largest cryptocurrencies.
Historically, they have served as an indicator of retail interest and risk tolerance in cryptos, but most market participants strongly caution against them.
Despite their speculative essence and absence of inherent value, they are broadly regarded as a vital segment of the crypto market and a crucial aspect of internet culture that embodies the crypto community's origins, ethos, and decentralized nature.
