According to crypto platform Kraken, the aggregate market cap for all meme coins is over $70 billion.  Five meme coins would be considered unicorns (market cap over $1 billion) if they were startups.  Dogecoin’s market cap is $35 billion.  Social media influencers, celebrities and high-profile politicians have either launched their own meme coin or endorsed others, including Caitlyn Jenner (JENNER), Iggy Azalea (MOTHER) and Donald Trump (MAGA).  Meme coins are not backed by any real-world assets, not even virtual assets. In fact, many meme coins originate as internet jokes.  

Meme coins lack any inherent utility and function primarily as speculative gambling vehicles.  Given the speculative nature of meme coins, they tend to experience significant market price volatility.  

But are they securities?  The answer is generally no, according to a staff statement released by the Securities and Exchange Commission’s Division of Corporation Finance on February 27, 2025. 

The Statement begins with a specific description of meme coins.  It describes a “meme coin” as a type of crypto asset inspired by internet memes, characters, current events or trends for which the promoter seeks to attract an enthusiastic online community to purchase the coin and engage in its trading.  Meme coins are typically purchased for entertainment, social interaction and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, they are akin to collectibles.  Meme coins also typically have limited or no use or functionality and are often accompanied by statements regarding their risks and lack of utility, other than for entertainment or other non-functional purposes.

The Statement then analyzes whether meme coins of the type described in the Statement are investment contracts according to the Howey test, under which a financial instrument or arrangement is deemed to be an investment contract and thus a security if it involves an investment of money in a common enterprise with a reasonable expectation of earning a profit through the efforts of others.

The Statement begins the analysis by asserting that meme coin purchasers are not making an investment in a common 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. Further, any expectation of profits that meme coin purchasers have is not derived from the efforts of others. Rather, the value of meme coins is derived from speculative trading and the collective sentiment of the market, similar to a collectible. Moreover, the promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.

For the foregoing reasons, the Staff concludes that the offer and sale of the type of meme coins described in the Statement do not involve an investment in an enterprise, nor are they purchased with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.  Thus, the Staff’s view is that they are not investment contracts and thus not securities.

A few practical observations.  For starters, the Staff’s no security position should not be that surprising given that both President Trump and Melania Trump had issued their own meme coins just before the inauguration.

Further, although the Statement may seem to be a significant departure from the SEC’s enforcement approach to crypto assets during the Biden Administration in general, two factors may mitigate its impact. 

First, there was always a strong argument that pure meme coins are different from most other crypto currencies in terms of the Howey test and thus should not be deemed securities.  But the statement nevertheless does provide helpful guidance in this regard. 

Second, the Staff’s no security position does not apply to tokens that are inconsistent with the description of “meme coins” laid out in the Statement or to products that are simply labeled “meme coins” in an effort to evade the federal securities laws by disguising a product that otherwise would constitute a security.  The Staff will evaluate the economic realities of any particular transaction.  

Third, even if a meme coin does not satisfy the Howey test and does not benefit from the protections of the securities laws, a purchaser could still seek damages under common law theories of fraud and breach of contract.

And of course, it’s important to note that staff statements are not rules or regulations and thus have no legal force, although they do provide helpful visibility into SEC enforcement policy. In this regard, the Statement would indicate that the SEC will not pursue enforcement actions against issuers of meme coins of the type described in the Statement or against exchanges that provide a trading market in such meme coins.