The Securities and Exchange Commission (SEC) has made an unexpected declaration about meme coins that’s sending ripples through the crypto world. After years of strict regulatory scrutiny, the SEC now suggests these digital assets might not qualify as securities after all.
This significant shift marks a departure from the agency’s traditionally aggressive stance toward crypto assets. The decision specifically centers on the application of the Howey Test – the standard framework used to determine what constitutes a security. Importantly, this new position raises questions about the future regulatory landscape for different types of digital assets.
This article examines the SEC’s evolving perspective on meme coins, breaks down the legal reasoning behind this decision, and explores what this means for the broader cryptocurrency market.
The Evolution of SEC’s Crypto Stance
For years, the cryptocurrency industry navigated a hostile regulatory landscape as the SEC pursued an aggressive enforcement agenda under former Chair Gary Gensler. This approach attempted to extend SEC authority over virtually the entire digital asset ecosystem, treating almost every digital asset—including meme coins—as a security regardless of its purpose or function.
From aggressive enforcement to regulatory clarity
The SEC’s strategy underwent a seismic shift in early 2025. On January 21, Acting SEC Chair Mark Uyeda launched a dedicated Crypto Task Force led by Commissioner Hester Peirce, a long-time advocate for clearer crypto regulations. This move signaled a deliberate pivot from what critics called “regulation by enforcement” toward collaborative policymaking.
“For the last several years, the Commission’s views on crypto have been largely expressed through enforcement actions without engaging the general public,” noted Acting Chairman Uyeda when announcing the initiative 1. “It’s time for the Commission to rectify its approach and develop crypto policy in a more transparent manner.”
This transformation became apparent when the SEC began dismissing high-profile cases against industry leaders. In February 2025, the agency moved to dismiss its lawsuit against Coinbase, followed by similar actions against Ripple Labs, Kraken, Consensys, and Cumberland DRW LLC—the latter involving over $2 billion in crypto assets 2.
Key turning points in SEC crypto policy
Several critical developments marked this regulatory evolution:
- Creation of the Crypto Task Force (January 21, 2025) – Focused on developing comprehensive regulatory frameworks rather than pursuing enforcement actions.
- Rescission of problematic guidance (January 23, 2025) – The SEC replaced Staff Accounting Bulletin 121 with SAB 122, making it easier for financial institutions to custody crypto assets without onerous balance sheet requirements 3.
- Rebranding enforcement units – The SEC transformed its Crypto Assets and Cyber Unit into the Cyber and Emerging Technologies Unit, shifting focus from broad crypto enforcement to targeting actual fraud and misconduct 4.
- Dismissal of major lawsuits – The agency withdrew from litigation against major platforms, with dismissals often noting these actions would “facilitate the Commission’s ongoing efforts to reform and renew its regulatory approach to the crypto industry” 1.
Meanwhile, the nomination of Paul Atkins as SEC Chair further underscored this shift. Atkins, described as “a known advocate for a more lenient regulatory approach to cryptocurrencies” 2, has long criticized the SEC’s previous enforcement-led strategy.
The pressure for clearer guidelines
This transformation didn’t occur in a vacuum. The SEC faced mounting pressure from multiple directions:
First, judicial challenges questioned the agency’s approach. Notably, the Third Circuit Court of Appeals ordered the SEC to provide a more complete explanation for its refusal to engage in formal rulemaking for digital assets, finding the agency’s one-paragraph denial “insufficiently reasoned” and “arbitrary and capricious” 5.
Furthermore, industry participants consistently argued that existing securities laws—some dating back to the 1940s—were ill-suited for blockchain technology. The lack of clear guidelines created what many described as “a guessing game” for businesses 6.
Congressional pressure also intensified. As one representative noted, “The current lack of regulatory clarity has caused harm to both crypto-native and traditional financial services firms” 7. Many companies spent significant resources defending against SEC investigations, with some ceasing U.S. operations entirely.
Additionally, global competition emerged as a concern. Without clearer frameworks, innovation and investment could flow to countries with more predictable regulatory environments, potentially costing the U.S. its leadership in financial technology.
This combination of factors ultimately pushed the SEC toward establishing what Commissioner Peirce described as “a destination where people have great freedom to experiment and build interesting things” 4 while still protecting investors from genuine fraud.
Understanding the Howey Test for Crypto Assets
At the core of the SEC’s regulatory shift lies the Howey Test, a decades-old framework that continues to shape how digital assets are classified in the modern financial landscape.
The four critical elements of an investment contract
The Howey Test originated from a 1946 Supreme Court case, SEC v. W.J. Howey Co., which established the criteria for determining whether an arrangement qualifies as an “investment contract” and thus a security under federal law 8. This landmark decision created a four-pronged test that examines:
- An investment of money – Generally satisfied when purchasing crypto assets
- In a common enterprise – Typically means pooling of investor funds
- With a reasonable expectation of profits
- Derived from the efforts of others – Success depends primarily on someone else’s management or entrepreneurial skills
For any asset to be classified as a security, it must satisfy all four criteria simultaneously 8. If even one element is missing, the asset likely falls outside securities law jurisdiction.
Why meme coins fail the ‘common enterprise’ requirement
According to the SEC staff’s analysis, meme coins fundamentally fail to meet the “common enterprise” requirement 9. This determination hinges on a crucial distinction: meme coin purchasers are not investing in a business venture or pooled project where their funds are aggregated to develop an underlying enterprise 10.
As the SEC staff noted, “meme coin purchasers are not making an investment in an enterprise. That is, their funds are not pooled together to be deployed by promoters or other third parties for developing the coin or a related enterprise” 9.
Most courts have applied a “horizontal commonality” approach when evaluating this element, requiring that investors pool funds in an investment where profits correlate among all investors 8. Given that meme coin transactions primarily involve trading among individuals rather than funding a centralized project, they lack this essential characteristic of securities.
Absence of ‘expectation of profits from others’ efforts’
Perhaps even more significantly, meme coins fail the “efforts of others” prong of the Howey Test. The SEC determined that “any expectation of profits that meme coin purchasers have is not derived from the efforts of others” 9.
In contrast to securities, where value stems from managerial performance, meme coin value is “derived from speculative trading and the collective sentiment of the market, like a collectible” 9. Commissioner Crenshaw’s dissenting view argued that promoters who hype meme coins on social media and secure exchange listings are indeed performing crucial efforts 11.
Nevertheless, the SEC staff concluded that typical meme coin promoters do not undertake the kind of “managerial and entrepreneurial efforts from which purchasers could reasonably expect profit” 9. Court interpretations have established that this element requires “the efforts made by those other than the investor are the undeniably significant ones, those essential managerial efforts which affect the failure or success of the enterprise” 11.
Essentially, while meme coin values may fluctuate wildly, these price movements are driven primarily by market sentiment and speculative trading rather than by the business success of an underlying enterprise. Consequently, they fundamentally differ from traditional securities where investor returns depend on management expertise and business performance.
Inside the SEC’s Legal Reasoning
The SEC’s declaration on meme coins rests upon a carefully articulated legal foundation that distinguishes these digital assets from traditional securities. This legal reasoning establishes a precedent that could shape crypto regulation for years to come.
Collectibles vs. securities: The critical distinction
At the heart of the SEC’s stance lies a fundamental comparison: meme coins share more characteristics with collectibles than with financial securities. In its official statement, the Division of Corporation Finance explicitly noted that meme coins are “akin to collectibles” whose value is “driven primarily by market demand and speculation” 9.
Moreover, unlike traditional securities, meme coins typically “do not generate a yield or convey rights to future income, profits, or assets of a business” 9. This distinction proves crucial because it places meme coins outside the enumerated financial instruments in securities law definitions.
The collectible classification has substantial implications. Just as baseball cards or artwork aren’t regulated as securities despite potential appreciation, meme coins purchased primarily for “entertainment, social interaction, and cultural purposes” escape securities oversight 9. As a result, transactions involving meme coins don’t require SEC registration—though this also means purchasers lack securities law protections.
Commissioner Peirce’s influence on the decision
Commissioner Hester Peirce’s philosophy clearly shaped this regulatory approach. Peirce, who now leads the SEC’s Crypto Task Force, previously stated that “many of the memecoins that are out there probably do not have a home in the SEC under our current set of regulations” 12.
Her perspective represents a marked departure from the previous administration’s stance that virtually all crypto tokens could be classified as securities. Instead, Peirce advocates for a fact-specific analysis that reserves SEC oversight for tokens that clearly function as investment contracts 12.
In fact, Peirce connected this guidance to broader efforts to “stop using our enforcement division to try to write policy” 13, suggesting a more transparent regulatory approach moving forward.
Commissioner Crenshaw’s dissenting view
However, this position faced strong internal opposition. Commissioner Caroline Crenshaw issued a forceful dissent, calling the statement an “incomplete, unsupported view of the law” 14 that provides a potential “roadmap for crypto enterprises looking to evade oversight” 1.
Crenshaw particularly criticized the statement’s application of the Howey test, arguing that meme coins, like other financial products, “are issued to make money” 14. She emphasized that promoter activities often influence coin values—through limiting supply, conducting buybacks, or securing exchange listings—potentially satisfying the “efforts of others” prong of the test 14.
Finally, Crenshaw maintained that properly applying the Howey test would require individualized analysis of each unique asset rather than broadly exempting an entire category 14. This internal division underscores the continuing regulatory uncertainty surrounding digital assets, even as the SEC attempts to provide greater clarity.
Comparing Meme Coins to Other Digital Assets
Unlike meme coins, other digital assets face varying regulatory treatment based on their specific characteristics and functions. The SEC’s stance on meme coins provides valuable insights into how different crypto assets may be classified under securities laws.
Why utility tokens often qualify as securities
Utility tokens fundamentally differ from meme coins in their purpose and structure. These tokens provide access to specific products or services within a blockchain ecosystem 4. The SEC typically views utility tokens through a different lens because they often involve pooled investor funds for developing underlying platforms or services—satisfying the “common enterprise” element of the Howey Test.
Additionally, utility tokens frequently involve ongoing development efforts by identifiable teams. As one legal analysis noted, “utility token holders enjoy certain privileges such as access to specific services or discounted fees” 4. Therefore, purchasers often buy these tokens with expectations of profits derived from the entrepreneurial efforts of others, making them more likely to meet securities classification criteria.
Stablecoins: A different regulatory challenge
Stablecoins present yet another regulatory category. In April 2025, the SEC issued guidance exempting certain USD-pegged stablecoins from securities registration 15. According to this statement, “Covered Stablecoins” that maintain one-to-one USD backing, offer no yield or governance rights, and are marketed solely for payments or value storage fall outside securities definitions 16.
The SEC staff concluded that these stablecoins don’t constitute securities because “holders seek stability rather than profit” and don’t rely on managerial efforts of others 15. This distinction mirrors some reasoning applied to meme coins but stems from different underlying characteristics.
NFTs and the collectibles argument
Perhaps closest to meme coins in regulatory treatment, NFTs (Non-Fungible Tokens) often employ the same “collectibles” argument. The SEC’s rationale for meme coins “could also apply to NFTs that only represent artwork or collectibles” 17. Both asset classes typically derive value from market sentiment rather than business performance.
Nevertheless, certain NFT projects have faced SEC enforcement actions, especially when involving resale royalties that could trigger securities classification 18. This suggests that while the collectibles classification offers a potential regulatory safe harbor, specific features can still push digital assets into securities territory.
Overall, the SEC’s approach illustrates that digital asset classification depends on economic reality rather than labels—with meme coins representing just one point on a complex regulatory spectrum.
CFTC’s Role in Meme Coin Oversight
With the SEC stepping back from classifying meme coins as securities, attention shifts to the Commodity Futures Trading Commission (CFTC) as the likely regulatory authority for these digital assets. This transition creates both opportunities and challenges for the meme coin market.
Commodity classification implications
By default, meme coins that aren’t securities generally fall under the “commodity” classification within the CFTC’s jurisdiction. This categorization aligns with the CFTC’s historically broad interpretation of what constitutes a commodity under the Commodity Exchange Act 19. As Elizabeth Davis, former CFTC chief trial attorney, noted, “meme coins would likely be viewed as a digital asset that falls under their broad interpretation of a commodity” 20.
This classification places meme coins alongside established cryptocurrencies like Bitcoin and Ethereum in regulatory terms. The CFTC has repeatedly extended its definition of commodities to encompass digital assets 3, which creates a precedent for meme coin oversight within existing frameworks.
Fraud and market manipulation enforcement powers
Although the CFTC’s jurisdiction over spot markets is more limited than its derivatives oversight, it maintains significant enforcement capabilities. The agency can investigate and prosecute fraudulent schemes affecting meme coins, including:
- Wash trading
- Pump-and-dump schemes
- Other forms of market manipulation 21
The CFTC’s enforcement approach primarily targets misconduct that threatens market integrity rather than regulating day-to-day exchange operations 21. In recent years, the agency has expanded its monitoring efforts and collaborations with other regulatory bodies to combat deceptive activities in crypto markets 21.
The regulatory gap between SEC and CFTC
A notable regulatory gap exists between the two agencies’ oversight capabilities. Unlike the SEC’s comprehensive registration requirements, the CFTC cannot require spot crypto exchanges to register 22, creating potential oversight limitations.
Currently, several bills before Congress would expand CFTC powers to regulate fraud and market manipulation in cryptocurrency spot markets more directly 21. Elizabeth Davis suggests that “if the CFTC gets jurisdiction over spot crypto—as the winds seem to be pointing toward—then the chances are pretty good that meme coins would be included as well” 3.
Ultimately, this regulatory arrangement means meme coin participants gain protection from fraud and manipulation but lack the comprehensive disclosure requirements and investor safeguards of securities laws.
Conclusion
The SEC’s unexpected stance on meme coins marks a significant shift in cryptocurrency regulation. Rather than treating these digital assets as securities, regulators now view them more like collectibles, primarily driven by market sentiment and speculation.
This regulatory clarity benefits both investors and market participants. Meme coins fall under CFTC oversight as commodities, offering protection against fraud while avoiding complex securities registration requirements. Though Commissioner Crenshaw raises valid concerns, the SEC’s position aligns with practical market realities and established legal frameworks.
The distinction between meme coins and other digital assets – particularly utility tokens and stablecoins – demonstrates regulators’ growing sophistication in crypto markets. Each asset class receives tailored oversight based on its specific characteristics and functions, creating a more nuanced regulatory environment.
Looking ahead, market participants should expect continued evolution in digital asset regulation. While meme coins may escape securities classification, they still face meaningful oversight through the CFTC’s anti-fraud and market manipulation authority. This balanced approach aims to protect investors without stifling innovation in the rapidly changing cryptocurrency landscape.
References
[1] – https://www.freewritings.law/2025/02/sec-staff-statement-on-meme-coins-and-commissioner-crenshaws-response/
[2] – https://blockchain.bakermckenzie.com/2025/04/04/cryptocurrency-winds-of-change-keep-blowing-under-the-new-sec/
[3] – https://www.tradingview.com/news/cointelegraph:4f7cdb9fb094b:0-former-cftc-lawyer-says-agency-should-take-lead-on-memecoin-regulations/
[4] – https://www.coinbase.com/learn/crypto-basics/utility-tokens-vs-security-tokens-what-are-the-differences
[5] – https://www.ropesgray.com/en/insights/alerts/2025/01/third-circuit-coinbase-decision-pressures-sec-on-crypto-rulemaking
[6] – https://www.thestreet.com/crypto/policy/sec-debates-crypto-rules-as-lawmakers-push-for-regulatory-clarity
[7] – https://financialservices.house.gov/news/documentsingle.aspx?DocumentID=409694
[8] – https://www.investopedia.com/does-crypto-pass-the-howey-test-8385183
[9] – https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins
[10] – https://www.aoshearman.com/insights/ao-shearman-on-fintech-and-digital-assets/implications-of-the-secs-stance-that-meme-coins-are-not-securities
[11] – https://cooleypubco.com/2025/03/05/meme-coins-securities/
[12] – https://www.pryorcashman.com/publications/meme-coins-unchained-peirce-draws-a-line-on-sec-oversight
[13] – https://www.axios.com/2025/03/03/meme-coins-sec
[14] – https://www.sec.gov/newsroom/speeches-statements/crenshaw-response-staff-statement-meme-coins-022725
[15] – https://www.dechert.com/knowledge/onpoint/2025/4/sec-staff-issues-statement-on-stablecoins.html
[16] – https://www.winston.com/en/blogs-and-podcasts/capital-markets-and-securities-law-watch/sec-staff-issues-guidance-exempting-covered-stablecoins-from-registration-requirements
[17] – https://www.polsinelli.com/publications/staff-statement-on-meme-coins-signals-shift
[18] – https://www.lawoftheledger.com/2024/12/articles/nfts/nfts-and-securities-law-issues-are-on-the-rise-sec-analysis-relies-on-resale-royalties/
[19] – https://www.ainvest.com/news/cftc-davis-memecoins-fall-cftc-jurisdiction-2502/
[20] – https://cointelegraph.com/news/cftc-should-take-helm-of-memecoin-regulation-says-its-ex-attorney
[21] – https://www.merklescience.com/blog/cftc-oversight-of-the-spot-market-market-manipulation-in-crypto
[22] – https://www.klgates.com/CFTC-and-SEC-Perspectives-on-Cryptocurrency-and-Digital-Assets-Volume-I-A-Jurisdictional-Overview-5-6-2022