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Comment by terminalbraid | Hacker News Reader

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.

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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).

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

"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...

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