The new regulation on memecoins in the USA excludes them from the definition of security. Using the Howey test, even the offering and sale of a meme crypto do not fall under the definition of “part of an investment contract”.
Memecoin and the regulation of the SEC in the USA: the new definition
On February 27, the staff of the Division of Corporate Finance of the United States Securities and Exchange Commission (SEC) published a guide that provides new regulation on memecoins.
First and foremost, the definition of memecoin is as follows:
“A “memecoin” is a type of crypto asset inspired by memes, characters, current events, or internet trends for which the promoter seeks to attract an enthusiastic online community for the purchase of the meme coin and its trading.”
The new USA regulation on memecoins also states that their purchase generally occurs for entertainment, social interaction, and cultural purposes. Not only that, it is clearly stated that their value is determined by market demand and speculation.
This is a clear and straightforward definition that excludes memecoins from being considered as securities. In this sense, the new regulation also excludes that neither the buyers nor the holders of memecoins are protected by federal securities laws.
Memecoin and new USA regulation: they are not securities nor part of an investment contract
In general, the term “security” refers to all those financial instruments such as “azioni”, “note”, and “obbligazioni”, which generate a return or convey rights to future income, profits, or assets of a company.
From here, it is clear that, according to the new SEC regulation in the USA, memecoins are not securities.
At the same time, as has happened in the past, the new regulation also aims to clarify whether the offering and sale of memecoin can be defined as part of an investment contract according to the Howey test.
Specifically, the Howey test considers whether there is an investment in an enterprise based on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.
That said, due to the lack of requirements that match the famous Howey test, the offering and sale of memecoin is not to be considered as part of an investment contract.
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A new SEC of the USA
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The new, clear, and transparent regulation in the USA on the definition of what is (and what is not) a memecoin is part of something never seen before.
In fact, it seems that the agency under former President Gary Gensler and the Biden administration no longer exists, as it was the SEC itself that had pursued the crypto sector by accusing it of selling or issuing unregistered securities.
In its endless case against Ripple, for example, the previous SEC considered XRP as a security, while the defense lawyers used the Howey test to explain that it was not so. The same thing happened against Tron, and against crypto-exchanges like Kraken.
Recently, the SEC has shown that it has taken a big step back on crypto, giving up the various wars started in its previous version.