Recent SEC Guidance On Memecoins Suggests Broader Policy Change
On February 27, 2025, the SEC’s Division of Corporate Finance unveiled crucial guidance that positions memecoins—digital assets driven by internet culture—largely outside the realm of securities regulation. This announcement marks a pivotal shift from previous regulatory approaches, particularly under former Chair Gary Gensler, who sought broader oversight of the emerging digital-asset landscape.
The SEC defined memecoins as digital tokens inspired by internet memes or current trends, where promoters aim to cultivate an enthusiastic online community. A critical aspect of this guidance is the affirmation that memecoins are not typically sold as securities. This decision is particularly significant given the backdrop of regulatory uncertainty that has surrounded digital assets since the Biden Administration’s foray into crypto governance.
The SEC’s criteria for determining whether financial transactions can be classified as investment contracts hinge on the Supreme Court’s “Howey test.” This test requires an investment of money in a common enterprise with expectations for profits that depend on the efforts of others. However, the latest SEC guidance clarifies that buyers of memecoins do not engage in a common enterprise, as their investments are not pooled for business development by the promoters. Instead, memecoins derive their value primarily from market speculation and collective sentiment akin to collectibles.
Implications of this guidance extend beyond memecoins, potentially affecting all secondary-market transactions involving digital assets. In these contexts, the SEC acknowledges that investors’ funds are similarly unpooled, reinforcing the argument that such transactions may not fall under the agency’s jurisdiction as envisioned by the Howey test. This recognition could complicate the SEC’s enforcement actions against platforms that deal with various digital assets.
Moreover, this doctrinal shift may explain why the SEC has recently chosen to dismiss or pause several enforcement proceedings concerning secondary-market transactions. Critics of the SEC’s aggressive regulatory stance may view this as a necessary recalibration of the agency’s approach to digital assets.
While the SEC stresses that this guidance reflects the views of its staff rather than the agency’s official position—and that it does not carry legal weight—it represents a significant move away from a regulation-by-enforcement strategy that has characterized much of the SEC’s oversight of the digital asset sector. This guidance could reshape the landscape for digital assets, offering much-needed clarity to both proponents and critics of memecoins and beyond.
The SEC’s approach provides a glimmer of optimism for those advocating for clearer rules in the crypto domain and suggests a more nuanced engagement with a rapidly evolving technological landscape. The ramifications of this guidance are still unfolding, establishing a more defined framework that experts in crypto law and policy are keenly watching.
