In a significant clarification for the crypto industry, the Division of Corporation Finance of the US Securities and Exchange Commission (SEC) has stated that meme coins do not fall under US securities laws. According to the Division, meme coins — often inspired by internet trends, characters, or viral events — do not meet the legal criteria to be classified as securities, meaning their issuers and traders are not required to comply with the Securities Act of 1933’s registration or exemption requirements.

The SEC’s Division of Corporation Finance describes meme coins as a distinct category of crypto assets that:

• Are primarily purchased for entertainment, social engagement, and cultural purposes.
• Derive their value from market demand and speculation rather than utility or financial backing.
• Typically lack inherent functionality or real-world applications.
• Exhibit extreme price volatility driven by social media hype and community sentiment.
• Are often accompanied by disclaimers highlighting their speculative nature.

Why Aren’t Meme Coins Considered Securities?

According to the Division, meme coins do not meet the definition of securities under US federal law. They do not represent ownership in a business, generate financial returns, or confer rights to future profits or assets — key characteristics that typically define securities.

Do Meme Coins Pass the Howey Test?

The Howey Test determines whether an asset qualifies as an investment contract, a type of security. Meme coins fail three out of four Howey criteria:

1. No Common Enterprise – Buyers of meme coins are not contributing to a pooled investment where a promoter or company develops the asset for profit.
2. No Reasonable Expectation of Profit – Value fluctuations stem from speculation and collective sentiment, much like collectibles, rather than business growth.
3. No Reliance on Managerial Efforts – Meme coin prices do not depend on the actions of their creators but instead rise and fall based on viral trends and community activity.

While this announcement provides a broad exemption for most meme coins, the SEC reserves the right to evaluate individual cases. Meme coins that do not align with these general characteristics — or are structured to bypass securities regulations — could still be subject to federal securities laws.

On 20 March 2025, the US Securities and Exchange Commission (SEC) issued its first official statement on crypto mining, confirming that income generated from mining on Proof-of-Work (PoW) blockchains does not constitute security.

While widely assumed within the industry, this clarification is a landmark move. It addresses long-standing ambiguity over whether mining profits could fall under the definition of an “investment contract” under the Howey Test — the legal test used to determine whether an arrangement must be registered under securities laws.

The SEC distinguishes between two types of mining:

• Solo mining, where individuals use their own hardware
• Mining pools, where multiple users share resources but still perform transaction validation independently

In both cases, miners are not earning through the efforts of others — a key element of the Howey Test. Instead, they are being compensated for directly supporting blockchain operations. As such, mining is viewed by the SEC as a technical function rather than an investment activity.

It’s important to note that this clarification applies exclusively to Proof-of-Work protocols, such as Bitcoin. The SEC has not yet issued a position on Proof-of-Stake (PoS), where transaction validation is based on token ownership rather than computing power. In contrast, the UK has already excluded PoS-related earnings from its collective investment scheme regime through legislative amendments.

This move is part of the SEC’s broader campaign to clarify its stance on key crypto sectors. In February, it released a statement on memecoins. Now, with mining addressed, all eyes turn to how the SEC will regulate staking and decentralised finance. Though the statement is legally binding only in the US, its global impact is significant, given the SEC’s role in shaping international regulatory approaches.

In April, the SEC outlined when certain stablecoins — termed Covered Stablecoins — do not qualify as securities.

To qualify as a non-security under the SEC’s new guidance, a stablecoin must:

• Be pegged 1:1 to the USD
• Be redeemable at any time for USD
• Be fully backed by low-risk, highly liquid reserves
• Be marketed solely as a means of payment, not as an investment

The key conclusion: the offer and sale of Covered Stablecoins do not constitute securities under the Securities Act or the Exchange Act.

That may sound intuitive — these are payment tools, not investment vehicles—but legally, the analysis is more nuanced.

The “note” question: Reves test

Because Covered Stablecoins involve a right of redemption and issuer obligation, they share similar features with notes, which are included in the statutory definition of a “security.”

A note is a debt instrument — essentially a written promise by one party (the issuer) to repay another party (the holder) a certain amount of money, possibly with interest, either on demand or at a fixed future date.

That structure triggers the need for further legal analysis under the Reves test (from Reves v. Ernst & Young (1990)) to determine whether the presumption that a note is a security can be rebutted.

The Reves test weighs four factors:

1. Motivations of the buyer and seller – are they seeking profit or fulfilling a commercial or consumer purpose?
2. Plan of distribution – is there widespread trading for speculative purposes?
3. Reasonable expectations – would a reasonable buyer expect the instrument to be a security?
4. Risk-reducing features – are there mechanisms (such as regulation or collateral) that reduce risk?

The SEC’s conclusion regarding stablecoins:

• Buyers are motivated by utility, not profit
• Stablecoins are widely distributed but designed for price stability, not speculation
• Marketing focuses on payment functionality, not investment potential
• A fully collateralised reserve system significantly reduces risk

The SEC concludes that Covered Stablecoins are not securities under Reves.

What about Howey?

Even if not a “note,” a stablecoin might still qualify as an investment contract under the Howey test if it involves:

• An investment of money
• In a common enterprise
• With a reasonable expectation of profit
• Derived from the efforts of others

However, buyers of Covered Stablecoins do not expect profit from others’ efforts. These coins are used like digital dollars — for payments and storage of value — not investments.

Key takeaway

What the SEC did here is apply its core economic reality principle: If a stablecoin is built as a means of payment, marketed as a means of payment, and functions like a means of payment, the SEC will treat it as a means of payment, not a security.