SEC Division’s New Stance on Memecoins Marks Major Change in Cryptocurrency Regulation

TLDR

• The SEC’s Division of Corporation Finance has declared that memecoins generally don’t qualify as securities under federal law, viewing them more as collectibles purchased for entertainment and social purposes
• Their value is driven by market demand and speculation rather than business development or management efforts, failing to meet the Howey test criteria for securities
• While memecoins themselves may avoid SEC registration requirements, fraudulent activities can still face enforcement from other regulators
• High-profile figures like Trump and Argentina’s President Milei have been involved with memecoin promotions, leading to controversy
• The announcement marks a shift from the SEC’s previous stance under former chair Gary Gensler, who viewed most cryptocurrencies as securities

The Securities and Exchange Commission’s Division of Corporation Finance announced on February 27, 2025, that memecoins generally do not qualify as securities under federal law. This decision marks a clear departure from previous regulatory approaches.

The division’s statement focuses on the nature of memecoins as entertainment and social interaction tools. These digital assets are primarily bought for cultural purposes rather than investment goals.

According to the SEC staff, memecoins lack the key characteristics that would classify them as securities under the Howey test. This legal framework determines whether an asset qualifies as an investment contract.

The commission pointed out that memecoins don’t typically involve pooled investments. There’s usually no central team collecting funds to develop a business venture.

Market demand and speculation drive memecoin prices, not business development efforts. This differs from traditional securities, where company performance affects value.

The new position means memecoin creators won’t need to register with the SEC. However, the agency warned that fraudulent activities could still face consequences from other regulators.

Political Fallout

Recent events have put memecoins in the political spotlight. Former President Trump’s team launched a Solana-based TRUMP token before his January inauguration.

The TRUMP token experienced a dramatic price swing. After an initial surge, it dropped 83% from its peak to $12.60, according to CoinGecko data.

Argentina’s President Javier Milei also entered the memecoin arena. His promotion of a memecoin on social media led to fraud charges and a judicial investigation.

Democrats have responded with proposed legislation called the MEME Act. This bill would prevent government officials and their families from promoting memecoins.

The SEC emphasized that their statement isn’t an official rule or regulation. It serves as a staff interpretation without legal force or effect.

Projects trying to disguise securities as memecoins will still face scrutiny. The SEC will examine the “economic realities” of each token to determine proper classification.

This guidance represents a change from former SEC Chair Gary Gensler’s approach. Under his leadership, the agency viewed most cryptocurrencies, except Bitcoin, as securities.

The Ripple Labs case exemplifies the previous regulatory stance. While a 2023 ruling found that XRP’s programmatic sales didn’t violate securities laws, the SEC appealed.

The latest announcement comes during broader changes in crypto regulation under the Trump administration. The SEC has already dropped several crypto-related lawsuits initiated during the Biden era.