According to the Securities and Exchange Commission, meme coins don’t meet the requirements to be protected by federal securities law. In new guidance issued on Thursday, the SEC announced that it doesn’t view most meme coins — cryptocurrencies that originate from internet memes or cultural phenomena — as securities, and that transactions around them do not need to be registered with the commission.
The SEC said it reached this decision because the coins do not “generate a yield or convey rights to future income, profits, or assets of a business,” and therefore cannot be considered a security. Instead, the SEC describes meme coins as “more akin to collectibles” and “typically have limited or no use or functionality.”
The clarified guidance could impact crypto regulations and shield companies and individuals that create meme coins from potential litigation. The digital currencies tend to experience volatile price swings and are popularly used in “pump and dump” schemes, in which a token is artificially inflated via insider promotion to cash in on the buying frenzy.
“Meme coins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation,” said the SEC. “Given the speculative nature of meme coins, they tend to experience significant market price volatility, and often are accompanied by statements regarding their risks and lack of utility, other than for entertainment or other non-functional purposes.”