The SEC’s Recent Guidelines on Memecoins May Herald Changes in Cryptocurrency Regulation Policy
Date: 2025-03-11 Author: Gabriel Deangelo Categories: CRYPTO PAYMENTS
On February 27, the SEC staff issued guidance clarifying that memecoins are digital assets inspired by internet memes, characters, current events, or trends, with the goal of engaging an online community. The SEC concluded that such assets are not generally considered securities. The statement marks a departure from a previous strategy under former Chairman Gary Gensler to assert regulatory authority over nearly the entire digital industry. These changes could have far-reaching implications for the cryptocurrency market.
The SEC’s efforts to regulate digital assets under the Biden administration have relied heavily on the “Howey Test,” which is used to determine whether a transaction is an investment contract. This test requires that capital be invested in a joint venture with the expectation of profit from the efforts of third parties.
However, in lawsuits against cryptocurrency exchanges, defendants have argued that secondary sales of digital assets do not meet this requirement because investor funds are not “pooled” by developers into a common fund for later use in a business from which investors expect to profit. For example, in the case against Kraken, the SEC argued that “pooling of funds from resales” by a developer is not required by the Howey Test.
The SEC’s new guidance supports the opposite view. The SEC states that memecoin buyers are not investing in a joint venture because their funds are not pooled for use by third parties to develop the coin or a related business. It also notes that memecoin buyers do not expect to profit from the efforts of others. Instead, memecoins are valued “by speculative trading and collective market sentiment, like a collectible.”
The guidance has the most obvious implications for the sale and promotion of memecoins, which have been the subject of recent private class action lawsuits. But it also affects all secondary market transactions of digital assets, including those on exchanges. In such transactions, buyers’ funds are also not “pooled” to develop the coin or business, as defendants have alleged in previous SEC cases. Thus, the SEC now appears to recognize that, under the proper application of the Howey Test, such transactions fall outside its jurisdiction, as defendants have consistently argued.
This doctrinal shift may be one reason why the SEC recently decided to drop several cases involving secondary transactions and stay others.
While the SEC’s new guidance represents agency opinion rather than mandatory law and has no legal effect, the changes in the SEC’s position on the “pooling” of funds will make it more difficult for private plaintiffs to argue that most digital assets are sold as securities. Overall, the SEC's guidance on memecoins reflects a broader trend toward relaxing the litigation-based approach to regulation that characterized the work of former Gensler Chairman and is an important step forward for cryptocurrency policy and legislation in the U.S.
