Overview
While we anticipated a relaxed US Securities and Exchange Commission (SEC) under the new administration, even the biggest proponents of a lax SEC did not expect a “meme coin” blessing within weeks of a new SEC chair being appointed. On February 27, 2025, the SEC released a “Staff Statement on Meme Coins,” stating that meme coins are not securities (the Statement).
In Depth
The Statement comes on the heels of a quarter-long period that saw a significant market move into meme coins, price increases, drastic drops, and seemingly weekly stories of meme coins exceeding hundreds of million-dollar market caps. Based on these and other developments, we now expect significant market moves and new players into the popular – often satirical – offerings of meme coins and platforms that make launching meme coins very simple.
Meme coins are cryptocurrencies that follow trends, employ humor, and try to build a sense of community to attract users and investors. Meme coins currently represent a staggering $56 billion of the total cryptocurrency market cap, with some of them reaching market caps in the multiple billions of dollars. Lately, there also has been a surge of meme coins popularized by protocols such as Pump Fun (which allows users to launch a token without having to seed liquidity) and Clanker (which allows users to launch tokens using natural language on Farcaster). While meme coins are the latest profitability craze for retail investors hoping to make it big, certain data points suggest that only 0.41% of Pump Fun traders realized more than $10,000 in profit.
The Statement indicates that meme coins do not constitute a “stock,” “note,” “bond,” or “investment contract.” In doing so, the SEC made clear that those who issue meme coins (that fit the SEC’s definition) do not need to register with the SEC.
The SEC defined a “meme coin” as a type of crypto asset that is “inspired by internet memes, characters, current events, or trends.” The SEC also compared meme coins to collectibles, because meme coins “typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation.”
First, the SEC states that meme coin purchasers are not making an investment in an enterprise because “their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise.”
Second, the SEC states that meme coins do not meet an “expectation of profit derived from the efforts of others” because “the value of meme coins is derived by speculative trading and collective sentiment of the market, like a collectible.”
There have been many public reports of popular meme coin launches that involved alleged market manipulation and “sniping.” Given this Statement, plaintiffs may not be able to rely on an “unregistered sale of securities” claim and instead could need to prove fraud or intentional market manipulation. This would put plaintiffs to their proof to establish actual misconduct – and not just a technical alleged violation of the securities laws which have been unclear for more than a decade.
The SEC specifically made clear in the statement that “fraudulent conduct related to the offer and sale of meme coins may be subject to enforcement action or prosecution by other federal or state agencies under other federal and state laws.” There are other government enforcement tools to combat fraudulent actions connected with meme coins, including commodities laws and criminal laws such as wire fraud which don’t require proof that the underlying meme coin is a security.
However, only certain tokens that meet this definition are covered under this Statement. As such, the SEC included certain disclaimer language in the Statement, including that the reasoning does not (i) extend to meme coins that are inconsistent with the Statement’s descriptions or (ii) apply to those who market their token as a “meme coin” to simply evade application of the securities laws. This suggests that there still could be future litigation (brought by the SEC or private plaintiffs) around whether certain cryptocurrencies fall within the “meme coin” category described in the Statement. We suspect there also may be litigation and disputes concerning cryptocurrencies that have some of the “meme coin” properties described in the Statement but have additional properties such as yield-earning opportunities or ties to a particular project team or company. Given the rise in popularity of meme coins, platforms that offer tools to launch meme coins may continue to see an increase in volume, and we expect that certain centralized exchanges may opt to list more meme coins as a result of the Statement.
On balance, the SEC’s Statement is good for those who issue meme coins and platforms that make them easy to launch. The SEC pumped some fun into the meme coin market, which may lead to some interesting court battles and enforcement actions concerning which cryptocurrencies are covered by this “meme coin” non-securities blessing.
