US SEC Rejects Memecoins as Securities, Warns of Fraudulent Tokens

The Securities and Exchange Commission (SEC) is gradually shaping crypto regulations in the US following Donald Trump's return to the White House. This week, the SEC clarified that memecoins do not qualify as securities, meaning investors are not required to register their transactions under the Securities Act of 1933. The announcement comes amid a surge in meme tokens flooding the crypto market in recent years.

Memecoins are crypto tokens inspired by trending memes, characters, or events. Their creators attract investors by leveraging viral popularity, but these tokens often rely on hype and speculation rather than intrinsic value, making them highly volatile and risky investments.

A statement by SEC's Division of Corporate Finance said, “memecoins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation. Memecoins also typically have limited or no use or functionality. In this regard, meme coins are akin to collectibles.”

SEC Explains Why Memecoins are Not Securities

In the US, financial instruments like stocks, cash notes, and bonds are classified as securities. However, the SEC has clarified that memecoins do not fall into this category.

According to the SEC, memecoins are typically not bought or sold with profit expectations or enterprise-related benefits. Additionally, their creators and promoters do not guarantee managerial efforts to generate returns for investors. Based on these factors, the SEC has ruled out classifying memecoins as securities.

“A meme coin does not constitute any of the common financial instruments specifically enumerated in the definition of ‘security' because, among other things, it does not generate a yield or convey rights to future income, profits, or assets of a business,” the agency said.

After clarifying its stance on memecoins, the SEC warned creators that promoting scam memecoins could lead to enforcement action. The agency also cautioned that mislabelling financial products as memecoins to bypass federal securities laws may result in legal consequences for those involved.

Memecoin Menace

SEC commissioner Hester Peirce had recently addressed concerns around the memecoin menace during an interview with Bloomberg. He highlighted in his interview that many memecoins do not comply with current regulations in the US – asking the US Congress and the Commodity Futures Trading Commission (CFTC) to pay attention to the matter.

Earlier this month, Dubai's crypto regulatory body VARA sounded an alert about the rising number of memecoins being injected into the market. Calling them ‘highly speculative crypto assets', the VARA said memecoins pose a big risk to investors and can lead to scams and rug pulls. In an official post last week, VARA said memecoins are frequently subject to market manipulation, lack intrinsic value, and derive their values from promotional strategies, which could be false or misleading.

According to Forbes, the memecoin market capitalisation stands at $48.13 billion (roughly Rs. 4,21,228 crore) as of Friday. Dogecoin and Shiba Inu are popular names in the memecoins category. As per CoinMarketCap, DOGE is the eighth largest crypto by market cap whereas SHIB is on the 18th position on Friday, February 28. Pepecoin, Bonk, and Floki are other popular names in the memecoins arena.

Despite the related risk factors, memecoins have continued to enjoy endorsements from celebrities and public figures.

Elon Musk, for instance, has been an avid supporter of Dogecoin. Last month, US President Trump and First Lady Melania had launched memecoins branded after their identities. In February, the President of Argentina promoted a memecoin – only to spark concerns of a rug pull later.

Crypto regulators worldwide are warning against investing in newly launched, hype-driven memecoins to help investors avoid potential losses.