Meme Coin Statement Is a Sign of Changing Crypto Priorities at SEC — Barrons.com

By Kenneth CorbinWith the election of President Donald Trump, it was widely assumed that his second administration would take a more supportive stance toward cryptocurrency than the Biden White House did. Now just over a month in, the industry is starting to see what a crypto-friendly administration looks like.The Securities and Exchange Commission has been dropping investigations and enforcement actions involving crypto firms started in the previous administration, it has formed a task force to explore crypto regulations led by a commissioner seen as an ally by the industry, and, on Thursday, it announced a staff decision that so-called meme coins shouldn't be regulated like securities, but rather are something more like baseball cards or Fabergé eggs."Meme coins typically are purchased for entertainment, social interaction, and cultural purposes, and their value is driven primarily by market demand and speculation," reads the staff opinion of the SEC's Division of Corporate Finance. "In this regard, meme coins are akin to collectibles."A staff opinion such as the meme coin statement doesn't constitute official SEC policy, but it is the latest sign that the commission is moving in a different direction from the position it took toward crypto in the Biden administration.Former Chairman Gary Gensler argued that nearly all crypto offerings were essentially the same as securities, and the commission under his direction brought numerous enforcement actions charging crypto firms with operating unregistered securities offerings.That approach drew sharp dissent from Gensler's Republican colleagues at the commission, who accused him of being overly hostile to crypto as an asset class, a view that was widely shared by the industry.Now, one of those Republicans, Mark Uyeda, is the acting chairman of the commission. Another, Commissioner Hester Peirce, is chairing the crypto task force. Trump's nominee to head the SEC on a permanent basis, former Commissioner Paul Atkins, has worked as a crypto advocate arguing against stringent SEC regulation of the industry.On Thursday, the SEC announced that it was dropping its enforcement action against the crypto exchange Coinbase."For the last several years, the commission's views on crypto have been largely expressed through enforcement actions without engaging the general public," Uyeda says. "It's time for the commission to rectify its approach and develop crypto policy in a more transparent manner." He adds that the crypto task force Peirce is leading "is designed to do just that."In another move that seemed to soften the SEC's stance toward crypto, the commission last week announced the formation of the Cyber and Emerging Technologies Unit, which would replace the Crypto Assets and Cyber Unit, a team that had been monitoring the crypto space. The new unit would shift its focus to "combating cyber-related misconduct and to protect retail investors from bad actors in the emerging technologies space," and "complement" the work of Peirce's task force.The decision to walk away from the Coinbase enforcement action follows similar moves abandoning crypto investigations or enforcement actions involving firms such as Robinhood, Bina nce, and Consensys. The agency also has put on hold its civil fraud case against Chinese crypto entrepreneur Justin Sun as it explores a resolution to the case.With Coinbase, the SEC took the extra step of issuing a press release, saying the move to drop the enforcement action had nothing to do with the merits of the case, but because doing so would support its "ongoing efforts to reform and renew its regulatory approach to the crypto industry."That drew a strong response from the SEC's sole Democratic commissioner, Caroline Crenshaw, who called the decisions to drop crypto cases "unprecedented" and running counter to decades of established law."We say we are dismissing the action because of future recommendations that may be made by the 'crypto task force dedicated to helping the Commission develop the regulatory framework for crypto assets,'" she says, citing the SEC and Coinbase's joint stipulation to dismiss the case. "But, whatever the law may be tomorrow, market participants should not be able to avoid the law as it stands today."She was similarly critical of the staff opinion regarding meme coins, which she argued left the asset class "vaguely defined" and missed the more important point of SEC jurisdiction."Whatever one might understand a meme coin to be, the label is largely irrelevant to whether something is offered and sold as a 'security' under the SEC's remit," she says.The staff statement describes meme coins as assets "inspired by internet memes, characters, current events, or trends for which the promoter seeks to attract an enthusiastic online community to purchase the meme coin and engage in its trading," noting that they generally have "limited or no use or functionality." It also argues that meme coin promoters often acknowledge the "risks and lack of utility" of the assets, and that the promoters don't indicate that they will actively work to make the investments profitable, one element of the long-established Howey test to determine whether a transaction is an investment contract subject to securities regulation.Crenshaw isn't buying it."Among the hundreds of self-proclaimed meme coins in the market, there is no doubt a continuum of offers and sales, some of which may be offers and sales of securities and some of which may not," she says. "This guidance is not a reasoned interpretation of existing law," she adds. "It boils down to a broad statement of general principles that provide little clarity or predictability as to any given coin."Write to [email protected] content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.