The Securities and Exchange Commission clarified on Thursday that memecoins do not fall under the purview of federal securities laws, although fraudulent activities involving memecoins could still be subject to legal consequences.
What happened: The SEC's Division of Corporation Finance stated in a press release that cryptocurrencies inspired by internet memes, characters, and current trends and having limited or no functionality are not securities.
This also meant that parties involved in meme coin transactions won't be protected by federal securities laws.
"The offer and sale of meme coins does not involve an investment in an enterprise, nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others," the statement read, explaining how the asset doesn't meet the Howey Test guidelines.
That said, the SEC emphasized that the statement doesn't apply to assets that are falsely labeled meme coins to evade the laws. In that case, the SEC will "evaluate the economic realities" of the project.
See Also: SEC Closes Investigation Against Crypto Exchange Gemini, Says Cameron Winklevoss: ‘Another Milestone To The End Of The War On Crypto’
Why It Matters: This announcement comes amid a surge in the volume of memecoins, with January marking a new high of over 600,000 new tokens launched in a single month.
Hester Peirce, head of the SEC’s cryptocurrency task force, stated earlier this month that most memecoins may be outside the agency’s jurisdiction.
President Donald Trump, who promised to bring about a more lenient regulatory environment for digital assets under his watch, launched his Official Trump TRUMP/USD just before his inauguration last month. This was followed by the Official Melania MELANIA/USD launch by First Lady Melania Trump.
Meanwhile, community-driven meme coins like Dogecoin DOGE/USD and Pepe PEPE/USD have been a hot favorite among enthusiasts, generating returns of 102% and 183% over the past year, respectively.
Image via Shutterstock
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