Cryptos sound alarm on meme coins, but SEC unlikely to regulate

Considered a bit of a joke, even by hardcore proponents of cryptocurrencies, sentiment or ‘meme’ coins’, were thrust into the spotlight last month when US President Donald Trump and his wife, Melania each launched their own. 

Many in the crypto and digital asset sector welcomed the new US administration because it promised a more positive regulatory environment that could translate into greater institutional interest and mainstream acceptance. 

Big name bitcoin exchange-traded fund providers Grayscale and Bitwise hopped on the trend and announced plans to launch Dogecoin ETFs. However, crypto advocates have dismissed meme coins, warning they have no real value.  

Moreover, Trump’s coin launch has deflected attention from more serious crypto industry concerns, such as dealing with ongoing government lawsuits against crypto exchanges such as Binance, Coinbase and others for allegedly operating unregistered securities exchanges.

Thriving on hype?

Meme coins are digital currencies inspired by internet memes or other cultural phenomena and typically use standard blockchain protocols. Much like any collectible item, they do not have any serious financial or technological purpose. 

One of the most famous is Dogecoin, created by two software engineers to make fun of the speculation in cryptocurrencies at the time. When Dogecoin was championed by tech billionaire and now special government employee Elon Musk, its price and profile were raised. Currently, Dogecoin is worth around 25 US cents. For comparison, Bitcoin is worth around $95,000. 

Many in the sector consider meme coins as “the carnival barkers of the digital asset world — full of noise, short on substance”, says Lisa Hough, founder of Eberly Energy Ventures. “They thrive on hype, not utility, and when the spotlight fades, so does their value.”

Lack of regulatory concern

Despite concerns, regulatory clarity from the federal level in the US regarding meme coins, and potentially meme coin exchange-traded funds, has been sparse. 

In an interview with Bloomberg, SEC commissioner and head of the newly formed crypto task force Hester Peirce said meme coins may not fall under the agency’s regulation as they do not necessarily meet the criteria for securities. One of the crypto task force’s first jobs will be to reclassify digital assets to distinguish between securities and non-securities, bringing regulatory clarity to the US market. 

Peirce said: “There are lots of people introducing meme coins right now, [and] facts and circumstances matter. But many of the meme coins that are out there probably do not have a home in the SEC under our current set of regulations.”

An SEC spokesperson declined to comment further. 

Wasting no time addressing the concerns around meme coins and specifically the Trump family offerings, Democratic senator Elizabeth Warren, ranking member on the Senate Committee on Banking, Housing and Urban Affairs, along with Democratic congressman Jack Auchincloss, both from Massachusetts, issued a letter to several acting chairs and a director of US government agencies. 

Sent directly to Office of Government Ethics director David Huitema, SEC acting chair Mark Uyeda, David Lebryk, acting secretary at the Department of the Treasury, and Commodity Futures Trading Commission (CFTC) acting chair Caroline Pham, the letter poised questions ranging from ethics concerns and threats of foreign interference to consumer protection and regulatory enforcement. 

It described meme coins as “cryptocurrencies that are inspired by internet memes or other viral trends that are popularised on social media. Meme coins are known for their high volatility; their worth is entirely speculative, undergoing rapid increases and decreases based on internet trends”.

Calls to the CFTC for comment on the letter were not returned by press time. 

Volatility warning

However, while not specifically singling out meme coins, the CFTC has announced it will hold a chief executive forum to discuss the launch of its digital asset markets pilot programme for tokenised non-cash collateral, such as stablecoins, which are often tied to the US dollar. 

Participants will include crypto-focused companies such as Circle, Coinbase, Crypto.com, MoonPay and Ripple. In 2023, Pham proposed a regulatory sandbox to provide clarity for digital asset markets and ensure robust guardrails are in place.

Responding to the rise of sentiment-based virtual currencies, the New York State Department of Financial Services warned: “The platforms that enable the creation of these coins are not licensed by the department and therefore are not subject to the rigorous virtual currency standards in place to protect consumers in the state.

“Moreover, sentiment-based coins tend to be subject to significant price volatility. New Yorkers should be aware that these coins present exceptional risk of fraud and loss of funds.”

It warned that these coins are often part of what is known as ‘pump-and-dump’ schemes — scams where the price is inflated artificially in order to reap substantial profits while causing the price to crash.

Crypto sector perspective

While these types of scams attract attention from regulators, participants in the cryptocurrency sector are unconcerned about the rise of meme coins, although not many are huge fans of the Trump coins. The Trump Organization and its affiliates hold 80% of the coin, leaving the remaining 20% of investors subject to its price volatility.

According to Paul Hamilton, managing director at Dubai-based consultancy Ibtikar, on-chain transaction data shows “the Trump coin on its own is an absolutely outrageous scam”. Of the 20 per cent released, “it’s obvious on-chain that the [development] team retained a third of those” and that of the “top 50 profit makers in the first two days, 20 were insider wallets — shameless”, he added.

Lorien Gamaroff, chief executive of crypto wallet provider Centbee, is unconcerned about the rise of meme coins, saying people have always valued sentimental items such as stamps or trading cards. However, they are “very risky and not stable investments”, and while they can “bring some fun to the crypto world”, some may be misled into thinking these coins have “lasting value, often investing money they can’t afford to lose due to fear of missing out”.

According to Gamaroff, the institutional sector should avoid meme coins, as they have “no real value beyond speculation and are often traded in unregulated markets”. 

Hamilton agreed, saying his 20-year-old children trade meme coins to a small extent. However, he added: “They are all fully aware that the game is rigged; they assume the same is true for all other types of investment but at least in meme coin world itʼs openly acknowledged.” 

While not overly concerned with meme coin investments, Gamaroff is worried that the hype around the offerings could overshadow the real benefits of blockchain technology, such as secure and low-cost digital payments. 

“People could come to see the entire industry as volatile and speculative,” he added. This could trigger regulatory crackdowns, with authorities imposing restrictions without fully understanding the differences between technologies.