The Securities and Exchange Commission clarified on Thursday that memecoins do not fall under the purview of federal securities laws

The SEC's Division of Corporation Finance stated in a press release that cryptocurrencies inspired by internet memes

The Securities and Exchange Commission clarified on Thursday that memecoins are generally outside the federal securities laws, but any fraudulent activities involving such assets could still face legal consequences.

What Happened: The SEC’s Division of Corporation Finance explained in a press release that cryptocurrencies bearing the likeness of internet memes, characters, or current trends, and offering limited or no functionality, are not securities.

This also meant that parties involved in meme coin transactions wouldn't be covered by federal securities laws.

"The offer and sale of meme coins does not involve an investment in an enterprise, nor is it undertaken with a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others," the statement went on to say, adding that the asset doesn't meet the Howey Test guidelines.

However, the SEC did note that the statement wouldn't apply to assets falsely labeled meme coins to circumvent the laws. In such a case, the SEC will "evaluate the economic realities" of the project.

See Also: SEC Closes Investigation Against Crypto Exchange Gemini

The announcement comes as the volume of memecoins has surged, with January marking a new high of over 600,000 new tokens launched in a single month.

Earlier this month, Hester Peirce, the head of the SEC’s cryptocurrency task force, said that most memecoins may fall outside the agency’s jurisdiction.

The memecoin trend also saw former President Donald Trump, who promised a more relaxed regulatory environment for digital assets during his administration, launching his Official Trump TRUMP/USD token just ahead of his inauguration last month. This was followed by the launch of the Official Melania MELANIA/USD token by First Lady Melania Trump.

Community-driven meme coins like Dogecoin DOGE/USD and Pepe PEPE/USD have also been a hit with enthusiasts, generating returns of 102% and 183% over the past year, respectively.