SEC says meme coins are not subject to federal securities laws

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SEC says meme coins are not subject to federal securities laws

Meme coins are not securities and, hence, aren’t subject to federal laws regulating the financial instruments, according to the

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. The agency has issued its official stance on meme coins, comparing them to collectibles, since their value is “derived from speculative trading and the collective sentiment of the market.” Meme coins do not fit the definition of securities under the law, SEC said, because they do “not generate a yield or convey rights to future income, profits, or assets of a business.” People who purchase them are also not considered to be investing in an enterprise, which means they’re not “investment contracts” that are classified as securities.

As such, people who sell and offer meme coins do not have to register their transactions with the commission under the Securities Act. Buyers are not protected by securities laws as a result, though that doesn’t automatically mean that scammers can use them to dupe people without repercussions. Any fraudulent transaction involving meme coins could still be subject to enforcement action under other federal and state laws.

The Trump administration’s Securities and Exchange Commission has been showing signs of being friendlier towards the cryptocurrency industry ever since he took office. Just within this month, the SEC agreed to end an enforcement case that accused Coinbase of illegally running an unregistered securities exchange. The commission also dropped an investigation into Robinhood, which faced charges of violating securities laws with its crypto listings and sales.

Even though the commission will not be regulating meme coins, it says it will still evaluate the “economic realities” of the presumably suspicious transactions they’re involved in. Meme coins must be crypto assets “inspired by internet memes, characters, current events, or trends” purchased for “entertainment, social interaction, and cultural purposes” and whose value is “driven primarily by market demand and speculation.” They typically have “limited or no use or functionality,” the commission wrote, and “experience significant market price volatility.” Crypto assets labeled as “meme coins” in an effort to evade regulations will still be considered as securities if they don’t fit that definition.

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