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Comment by ano-ther | Hacker News Reader

They treat them as collectibles with ”limited or no use.“ That makes sense, but isn’t quite supporting the crypto-world’s preferred narrative.

> Although individual meme coins may have unique features, meme coins typically share certain characteristics. Meme coins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, meme coins are akin to collectibles. Meme coins also typically have limited or no use or functionality.

https://www.sec.gov/newsroom/speeches-statements/staff-state...

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Unless "purchasing" and "paying for" are no longer forms of "social interaction" (i.e. interacting with society), I'm not sure how this differentiates it from literally any financial instrument, fiat included. This is an ambiguous and poorly divided line with loopholes you can drive a burning cybertruck through.

To be fair, a cybertruck is also a collectible with "limited or no use."

But is still subject to a significant degree of oversight

and less than I would like.

But not from the SEC

US Courts use the Howey Test to decide what counts as a security:

* It is an investment of money

* There is an expectation of profits from the investment

* The investment of money is in a common enterprise

* Any profit comes from the efforts of a promoter or third-party

https://www.findlaw.com/consumer/securities-law/what-is-the-...

If you read further in the SEC statement, they explain why typical meme coins fail the Howey Test.

> [T]he promoters of meme coins are not undertaking (or indicating an intention to undertake) managerial and entrepreneurial efforts from which purchasers could reasonably expect profit.

They should probably be regulated as a gambling game, though, and can sometimes be used as money laundering or bribery, as a way to pay the original sellers without revealing what they’re really paying for.

Yeah, basically the SEC is saying "the idea that anyone would make money on these is so self-evidently ludicrous that they can't even be considered securities, so they don't fall under our purview".

However, kicking them out under that legal theory doesn't mean that there's no other way to stop them. I'd say it just got a lot easier to prosecute anyone pitching a memecoin as a way to "get in on crypto" and make money just got a lot easier under the much less exotic legal theory of plain and simple fraud.

(Sometimes we ask for too many specific laws specifically outlawing this or that when all we really need is good ol' fashioned "fraud"; you said X to entice someone to buy a thing and X is a lie, here comes the hammer.)

I'm quite sympathetic to the SEC here. Theories about how BitCoin may gain or lose value, or the Ethereum chain or other contract chains, are one thing, but when the value proposition of a coin starts and ends with "It's named after a celebrity!", that's just so much vaporous nothing.

Often everyone involved knows that it’s a pump-and-dump game, so arguably they’re not being misled. But memecoins could be legally defined as fraud, just as pyramid schemes are. (Apparently pyramid schemes are called an “endless chain” scheme in the California legal code.)

From Wikipedia regarding the Trump meme coin:

> A disclaimer said that the coin was "not intended to be, or the subject of" an investment opportunity or a security and was "not political and has nothing to do with" any political campaign, political office or government agency.[6] The terms of the offering prohibit coin buyers from joining any class-action lawsuits against the project and assert indemnity against any claims.[8] Trump promoted the coin on the night of its ICO while a "Crypto Ball" was underway.[9]

> After its launch, its price soared by over 300% overnight.[10] Within two days, it became the 19th most valuable form of cryptocurrency in the world, with a total trading value of nearly $13 billion, and a total of $29 billion worth of trades based on a $64 value of each of the 200 million tokens issued by the afternoon of January 19th. The New York Times reported that Trump affiliates controlled an additional 800 million tokens that, hypothetically, could be worth over $56 billion, potentially making Trump one of the richest people in the world at an estimated net worth of $63.8 billion.[11] On January 19, 2025, Trump's wife Melania launched her own meme coin, $Melania.

So the promoter of the meme coin, Trump, could not reasonably expect a profit? And because of this, he can make billions overnight on cryptocurrency without being subject to SEC regulations?

Anybody who wants to bypass SEC regulations just needs to base their cryptocurrency on a meme and claim no expectations of profits...

Edit: I'm wrong about the expectation of profits part. It's assumed that the purchaser should have no expectations of profits.

So the promoter essentially just need to claim the cryptocurrency is a joke to not be subject to SEC regulations.

Reread the parent. They mean the purchaser has no expectations of profit because the promoter isn't running a business enterprise based on it. Unlike investing in a stock.

Not that I would ever light my money on fire like that...

> If you read further in the SEC statement, they explain why typical meme coins fail the Howey Test.

That's basically a circular definition of what a memecoin is, and doesn't encompass a lot of the tokens that have been created so far, especially if you weight them by their market cap. In other words, it doesn't cover the most relevant tokens (which you would still call memecoin without this new (re)definition).

"This is an ambiguous and poorly divided line with loopholes you can drive a burning cybertruck through."

Functions as designed.

I think the main difference is whether they are being sold as having some value behind them or not. You buy shares in Theranos or Enron and find it's a fraud you have a right to be pissed off and complain the SEC isn't doing it's job. You buy fartcoin and really you can't complain to anyone because there was no expectation of anything there.

While I understand that, it's not trivial to unambiguously classify when something has no property of "value". It's easy to contrive your fartcoin example, but if this were universally true you couldn't use the words "memecoin" and "rugpull" in the same context (because there's no rug to pull when something has no value) and yet that is all I see. Say recently

https://www.web3isgoinggreat.com/?id=milei-memecoin-promotio...

https://www.latintimes.com/crypto-trader-shot-himself-live-x...

https://defector.com/the-hawk-tuah-memecoin-rug-pull-is-the-...

https://beincrypto.com/kanye-west-barkmeta-meme-coin-controv...

https://beincrypto.com/libra-meme-coin-linked-to-melania/

https://www.ccn.com/news/crypto/child-streamers-30k-crypto-r...

I think as long as anybody promoting a meme coin uses an appropriate disclaimer, it's probably a reasonable decision. The problem is going to be that nobody is going to enforce people making fraudulent claims about meme coins because they're gutting the SEC.

The interesting thing about corruption and frauds like this is that when people get conned and lose everything, they don't get angry at the person that stole from them, they get angry about the people that called out the fraud or enforced regulations meant to protect them from losing more money.

"That makes sense, but isn’t quite supporting the crypto-world’s preferred narrative."

What gives you that impression? This article is about memecoins, not 'real' cryptos like ethereum or bitcoin.

> Meme coins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation. In this regard, meme coins are akin to collectibles.

This reads to me like "we won't treat your crypto like a security if you tie it to pop culture". Intent in purchasing crypto for novelty purposes doesn't change what it is or how people will use it.

Memecoins fail the Howey test, so they are not securities. App coins pass the Howey test, so they are securities. It's not complicated.

You haven't defined what a memecoin is though, so I'm not sure how that helps.

Memecoin = something that looks like a cryptocurrency when squinting but fails the Howey test

> Memecoins fail the Howey test

Surely this would depend on use. There's nothing essentially different about memecoins that would imply a distinct outcome from say bitcoin. Of all the ways you could use this test, differentiating between "memecoins" and "legitcoins" seems like the worst possible scenario: there isn't actually any qualitative difference to find in the first place. Hence, why this will eventually fall on courts to figure out.

I've never even heard of the term "app coin" before but surely it's just yet another crypto token with similar constraints and lack of obvious use.

> I've never even heard of the term "app coin" before but surely it's just yet another crypto token with similar constraints and lack of obvious use.

It's in the name. It's a token for use in an app. It derives value from the utility of that app and therefore the need to acquire the token to use the app. E.g. Filecoin. That pretty directly meets the Howey test.

A memecoin is explicitly pointless and of no utility. Its only purpose is to be a collectable associated with some pop culture. There is no expectation of value derived from its creator's efforts.

Bitcoin and ethereum are more complicated. Note that the SEC has previously ruled that bitcoin was not a security issuance, but ethereum was (though grandfathered in: the SEC declined to prosecute).

This opens the door for fully legalized bribery. Which is already happening. The SEC recently asked a judge to halt its own investigation into Justin Sun for fraud after he bought $75 million worth of Trump's WLF coin, $56 million of which went directly to Trump, immediately after the election. The case now will likely get dropped completely.

What's to stop foreign governments from doing the same thing, if they aren't already?

https://www.motherjones.com/politics/2025/02/sec-fraud-prose...

https://www.bloomberg.com/news/articles/2025-02-26/justin-su...

I am against meme coins, but ruling them to be collectibles like a trading card makes sense to me. How is a meme coin different than a baseball card? What about a virtual baseball card or other virtual item from CSGO or World of Warcraft?

To bolster my point, one could face the same corruption issue we face today with baseball cards: Trump could own a limited-edition baseball card; foreign governments then could then buy all the other prints of the same card, lowering the supply and raising the demand of Trump’s collectible. One can thus see how anyone can use any collectible as a means to corruption in the same ways that meme coins can be used.

I am illustrating why the SEC ruling is not completely unfounded on first pass. However, I think meme coins have a higher chance of being used for scams (and corruption, but that is a separate point) because there is an implicit promise that this product will induce a return and because the coin is rarely an ends in itself. But how do you regulate people’s intention? You can’t read people’s minds and force people to not to buy a collectible for the sole purpose of making a return on investment. I think people would find it ridiculous to tell pawn shops to not buy a Pokémon card if the shop treated the item solely as a means to flip, for example. Moreover, such market participants are beneficial because they offer liquidity to more sincere buyers and sellers.

I am not sure what logically consistent and beneficial regulations around meme coins would look like, but with more thinking than I have been able to put into this topic, I am sure one could come up with some. My instinct is SEC regulating the tokenomics to maximize transparency and force the creators to release the tokens in a way that won’t allow them to “rug pull” would be a good starting point. I think I would not be opposed to such relegations in any collectibles market, making the regulations logically consistent.

Regarding the president of the United States, Jimmy Carter was forced to sell his peanut farm to avoid conflicts of interest. I think that anyone who becomes the president of the United States should have to liquidate their whole net worth — collectibles and all — and put it into an independent fund that they have no control over. They will then get a set percentage amount of money from this fund every year, and everything left over when they die goes to their presidential library. They are not allowed to take money from anywhere else ever again. That would fix this corruption problem for good and has the added benefit of deterring people from running who just want to use the office for their own personal gain.

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