In 2024, meme coins became one of the most traded and discussed aspects of the cryptocurrency sector. Critics argue they give the industry a bad image. Others enjoy the gambling thrills and, at times, mind-boggling returns. If and when the U.S. government steps in to regulate this controversial industry, what will the outcome look like?
When the crypto sector earned the moniker “Wild West,” meme coins were to blame. Thousands of new tokens are created daily via platforms like Pump.Fun. Investors — a mix of retail traders, crypto insiders, influencers, and sometimes institutional players — all hope to get an unlikely jackpot.
Meme coin opponents also blame the space for being a distraction from the higher-quality projects across the crypto sector. For example, the pre-inauguration launch of the Official Trump (TRUMP) token exemplifies this trend.
“The crypto sector put someone in power whose first act is to emphasize and take advantage of the opportunity for grift within crypto,” Angela Walch, a crypto researcher, told Time. “And that’s just embarrassing.”
The meshing of meme coins and politics isn’t exclusive to the U.S. In Argentina, President Javier Milei promoted the Libra token, which rose to $4.50 before plummeting in value.
As Lyn Alden, the founder of Lyn Alden Investment Strategy, put it in January: “The same bearish [traditional finance] accounts that dismissed bitcoin due to mostly unrelated ICOs, DeFi, and NFTs, will now dismiss it due to meme coins.”
Democrats speak up
Feb. 27 was marked with two important events in the meme coins space. First, the U.S. Securities and Exchange Commission (SEC) said that the securities regulations will not adhere to meme coins. Second, the MEME Act proposal from Democrats aims to block American officials from launching their own meme coins, as Trump did before the inauguration. Are these events conflicting, and are meme coins so problematic? Let’s break it down.
The Official Trump token launch was controversial. Some saw it as a bold signal from the then-president-elect that he was ready to embrace crypto. However, many in the crypto community booed the move as a blatant “grift” considering the price dropped in value within just a few days.
The New York Times names $2 billion collectively lost by over 800,000 people who invested in the Trump coin.
Another important point of criticism was that the Official Trump token could line Trump’s pockets. Foreign political actors may bribe him effortlessly by buying TRUMP tokens in bulk (Trump signed an executive order freezing enforcement of the Foreign Corrupt Practices Act).
Various Democratic representatives are speaking up. California Democrat Rep. Sam Liccardo introduced the bill aimed to stop U.S. officials from creating tokens. Liccardo stressed that Trump’s meme coin “raises concerns about transparency, insider trading, and improper foreign influence.”
The bill, which is going to be named Modern Emoluments and Malfeasance Enforcement, or MEME Act, exists now only as a draft. The act is set to block the POTUS, Congress members, and other top officials and members of their families from launching cryptocurrencies.
More than that, the bill will block them from issuing or sponsoring both securities and commodities. The profits generated by Trump via the Official Trump token must be disgorged.
Although Liccardo doesn’t think that the Republican-controlled House of Representatives will support the bill now, he believes it can happen later when “the cult of Trump” will start to degrade and more Republicans will turn against him. The same week, it became known that the Trump family is going to create a branded metaverse that will include the NFT marketplace.
Was Gensler’s SEC too easy on meme coins?
Critics of the Biden-era crypto policies share a viewpoint that the Gary Gensler-led SEC deliberately ignored harmful meme coins while hunting down legitimate crypto brands like Ripple and Coinbase.
This theory suggests that the governmental agencies didn’t go after the thriving meme coin market as it served as a boogeyman to turn people against cryptocurrencies per se. People were investing in meme coins and losing money. It was creating a favorable background for the SEC and served as a good excuse to suppress legitimate crypto projects.
SEC stays away, but warns of volatility
While the Gensler-era SEC was criticized for constant equalization of cryptocurrencies to unregistered securities, effectively outlawing them, the crypto-friendly Hester Peirce-era SEC refused to step in when over $2 billion were siphoned away from over 810,000 wallets holding Official Trump.
Peirce indicated that the SEC is not responsible for dealing with meme coins, since they’re not classified as securities.
On Feb. 27, the SEC clarified its stance by ruling that meme coins are not securities and more akin to collectibles. Therefore, it cannot be regulated by the SEC and people launching meme coins don’t have to register them as securities.
The statement warns about the significant market price volatility of meme coins, noting that this disclaimer is usually present in the descriptions of meme coins. This ruling gives the green light to create even more meme coins in the future.
Although the new SEC continues to stay away from regulating the meme coin space, there are signs of crisis in the sector. One of the main hubs of the 2024 meme coin revolution was Pump.Fun, a Solana-based launchpad that acts as an Imgflip (a platform known for creating memes and GIFs) for crypto.
The tokens created on Pump.Fun are down 80%. Some attribute this decline to the controversial Libra coin downfall. However, the tariff war affecting the BTC price may be another mighty factor.
Meme coins are often compared to events like an ICO boom or an NFT boom, meaning that the dust will settle and the market will be recalibrated.
Vitalik Buterin said that the downsides of the ICO era were addressed via the DeFi solutions. The meme coin market can mature too.