The Securities and Exchange Commission (SEC) has recently adopted the notion of “meme coin” to define a new class of cryptocurrencies. In the meantime, the shorter, one-word version “memecoin” remains common in use elsewhere. This new language usage is important. This is a telling sign that the SEC’s guidance, while written in a vague manner, hints that “meme coins” are probably not securities, suggesting a fresher approach to regulating these digital assets. Earlier this year, memecoins like Pepe the Frog made big news and big profits in the crypto space. This trend carries over to those released since Trump’s 2016 electoral victory and ones with his face on them.
The SEC's "Meme Coin" Distinction
Some observers are interpreting the SEC’s choice to use the word “meme coin” as a strategic play. They think that the agency is aiming to separate itself from the casual and unserious connotation of “memecoin”. The label “memecoin” refers to a cryptocurrency that originates from an online meme or joke. These coins typically have no utility apart from the value their community is generating. Digital assets are notoriously volatile. Their value is often dictated by social media trends and general online sentiment.
What the SEC refers to as “meme coins” reflects a less conducive, less creative, more measured, far more doctrinaire environment. At their core, the idea behind them has not changed. This difference in focus is a big deal. It indicates that the agency is beginning to develop a framework for accounting for and regulating these often-off-the-rails digital currencies. The underlying nomenclature underscores the dilemma the SEC presently faces. They need to protect investors while at the same time fostering innovation in the dynamic, rapidly evolving cryptocurrency space.
The SEC’s announcement is a seismic shift in favor of the cryptocurrency industry. It goes on to say that “meme coins” generally do not qualify as securities. This stance, previously highlighted in an article titled "Meme or Scheme a Re-Oriented SEC Suggests a Quasi-Safe Harbor for Memecoins," suggests a willingness to provide a degree of regulatory clarity for these assets. The SEC could be signaling a softer approach on meme coins. This hands-off approach only extends to those digital coins that do not exhibit characteristics usually associated with securities issuance, such as profit guarantees derived from third party work.
Memecoins and the Trump Connection
The unexpected rise and rise of memecoins, from Dogecoin to Shiba to Floki, is inextricably linked to the evolution of internet culture, cryptocurrency, and politics. The memecoin that was originally created immediately after Donald Trump’s 2016 election victory. This occurrence is perhaps the most illustrative example of how rapidly these digital assets can latch onto popular conversation and sentiment. More recently, a memecoin bearing Trump's likeness reportedly generated $350 million in profits for the former President and its other issuers since his Inauguration. This incredible amount of financial activity serves to illustrate the memecoin’s power to generate life-altering wealth. Remember that their intrinsic value is mostly based on speculation and hype.
That Trump-related memecoin is a shining example of just how far celebrity endorsements and political connections can take digital assets. So it doesn’t become cornered and loses attention in the over-saturated crypto space. A high-profile, controversial figure like Trump can immensely increase a memecoin’s popularity and trading volume. This appeal continues to attract both experienced investors and those new to the industry, ready to jump into the game. This creates the opportunity for dangerous market manipulation and bad faith behavior. It underscores the need for strong transparency in the creation and free market trading of these assets.
The success of these Trump-themed memecoins is a great example of memecoins more generally finding their way into niche communities and subcultures. What’s more, these digital assets cater to particular interests or ideologies. This smart execution allows them to build a super fanbase and create word of mouth growth. While this community-driven approach can create exciting opportunities, it can pose serious risks. One memecoin’s value can be very susceptible to a tweet, the dog emoji, or the actions of its community leaders.
Implications for the Cryptocurrency Industry
The SEC’s increasingly hardline approach to the regulation of “meme coins” is very bad news for the rest of the crypto economy. Through these actions, the SEC is offering clarity on the regulatory status of these assets. This step opens the door for more innovation and increases investment in the industry. Most importantly, it reminds advocates that ongoing press scrutiny and state oversight are safety advocates’ best friends. This is crucial to protect investors from potential fraud and market manipulation.
The SEC’s guidance is the latest sign that regulators’ approach to cryptocurrency regulation is more complex than an outright ban. Perhaps most importantly, it understands that all digital assets are not created equal—or treated equally. In this action the agency is drawing a bright line between speculative “meme coins” and functional cryptocurrencies. This further reflects their commitment to continue adapting regulatory frameworks to focus on the unique characteristics and risks of each asset class. Such an approach would lead to increased regulatory certainty and help to create a more sustainable and responsible cryptocurrency marketplace.
Now the SEC has finally chosen to take on the “meme coin” phenomenon. This move shows the growing importance of the digital asset industry within the broader financial ecosystem. Digital assets have gone massively mainstream. Consequently, regulators are under immense pressure to bring forth clear and uniform rules that will both protect investors and allow for innovation and growth. The SEC is taking a new approach to dealing with “meme coins.” We believe that this shift reflects their commitment to addressing the challenges in the current state of the cryptocurrency market.
