• SEC rules meme coins are not securities, exempting them from federal regulations.
• Meme coins lack functionality and are driven by market demand and speculation.
• Fraudulent activities related to meme coins may still face legal action under other laws.

The U.S. Securities and Exchange Commission (SEC) has officially stated that meme coins are not securities, excluding them from federal securities regulations. 

This decision, announced by the SEC’s Division of Corporation Finance, clarifies that digital asset transactions won’t require registration under federal securities laws.

The SEC’s statement explained that meme coins, which are bought for entertainment, social interaction, and cultural reasons, lack real use or functionality. The SEC said that meme coins do not involve any real-world function or business backing, so they do not meet the definition of securities under federal law.

SEC’s Rationale: No Investment in a Common Enterprise

Moreover, the SEC’s ruling is based on two main points. First, buyers of meme coins do not invest in a common enterprise. Developers or promoters do not manage their funds to generate profits. 

Second, the profits that people make from meme coins come from speculative trading rather than efforts by a business or management team. The SEC noted that meme coin promoters do not undertake entrepreneurial or managerial activities that directly impact the value of the coins.

🚨NEW: The @SECGov Division of Corporation Finance has just put out guidance on memecoins saying they are NOT securities and are akin to collectibles.

“It is the Division’s view that transactions in the types of meme coins described in this statement, do not involve the offer…

— Eleanor Terrett (@EleanorTerrett) February 27, 2025

Related: Why Meme Coins Are Significant in The Cryptocurrency Space

Legal Basis: Securities Act of 1933 and 1934

In addition, the SEC referred to key sections of the Securities Act of 1933 and the Securities Exchange Act of 1934, which define securities. Under these provisions, meme coins do not qualify as securities, as they fail to meet the requirements for investment contracts.

Since meme coins are not considered securities, they are not governed by federal securities protections. Buyers and sellers of meme coins cannot expect support from the SEC if they suffer losses from market crashes or failed projects. 

Full guidance here plus some warnings including advising investors about market volatility in meme coins as well as a lack of financial protection:https://t.co/KxEtqJ8Gg9

— Eleanor Terrett (@EleanorTerrett) February 27, 2025

No Federal Protection, But Other Laws May Apply

Despite the exemption from securities laws, the SEC included a warning in its statement. 

It noted that while meme coins are not securities, federal or state authorities could still prosecute any illegal activities related to their sale under different laws.

Meme Coin Market Implications

While this ruling defines the status of meme coins under U.S. law, the impact on the crypto market remains to be seen. However, fewer regulatory restrictions could boost development and new projects within the meme coin market.  

Related: Coinbase CEO Sounds Alarm on Memecoin Market Scams

Meanwhile, the lack of regulation may lead to increased illegal activities, including scams and pump-and-dump schemes. With high-profile scams already affecting the space, the SEC’s stance leaves the door open for other regulators to step in where necessary.