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Securities Law and Crypto Assets in 2025

  • Writer: Ken
    Ken
  • Jan 20
  • 3 min read

2025 will be an unprecedented year for crypto assets in the United States. Expectations of a pro-cryptocurrency regime[1] were bolstered on Friday, January 17, 2025, when the president-elect released his own digital meme coin: $TRUMP.[2] Since 2017, the Securities and Exchange Commission (“SEC”) has made numerous charges in connection with crypto assets, alleging operation of unregistered securities exchanges and/or offering unregistered securities.[3] Among the crypto assets that have been targeted by the SEC are non-fungible tokens, or NFTs[4], which function as digital pieces of art and which have not received any formal rule-making or guidance. Creators of NFTs argue the tokens are exempt from securities laws in the same way physical artwork has historically been exempt. The $TRUMP meme coins appear to be following this argument with a disclaimer that states:

 

“Trump Memes are intended to function as an expression of support for, and engagement with, the ideals and beliefs embodied by the symbol "$TRUMP" and the associated artwork, and are not intended to be, or to be the subject of, an investment opportunity, investment contract, or security of any type.”[5]

 

The new administration is expected to implement policies that will clarify the relationship between crypto assets and securities laws. Could a distinction or exemption be made with respect to NFTs?

 

Recall that securities law has been grounded in the four-part test established by the US Supreme Court in SEC v. W.J. Howey Co.[6] The four elements of the test are: (1) an investment of money (2) in a common enterprise (3) with the expectation of profits (4) to be derived from the entrepreneurial or managerial efforts of others.[7] Application of the test is not limited to a finite form and the SEC has used the Howey test in its enforcement actions to classify certain NFTs as investment contracts, requiring registration or exemption under securities laws.[8] In the charges against Impact Theory and Stoner Cats 2, the SEC found overt marketing language describing the NFTs as investments. Federal courts have applied Howey to cases involving whisky casks and payphones to beavers and digital tokens.[9] So, a commodity like artwork, or an NFT, could certainly fall within the ambit of Howey.

 

Applying the Howey test to $TRUMP, we can see the first three elements being met quite easily. Buyers of the coin are certainly investing money in a common enterprise (i.e., the coins themselves) and they are very likely expecting to generate a profit from the coins appreciating in value. The fourth element is where further fact-finding would be necessary and it is not immediately apparent how tied to the President’s actions and conduct the value of $TRUMP will be. Courts have analyzed the fourth prong of Howey by looking to a promoter or third party's efforts to increase the value of the alleged security. In classifying the orange groves of Howey as securities, for example, the Court looked to the fact that third-party contractors, and not the buyers themselves, harvested and improved the land.


Nevertheless, it seems probable $TRUMP coins will be excluded or exempted from current securities laws under the new administration. Their release just days before inauguration would be foolhardy in light of the SEC's recent actions against crypto assets. The form of the exclusion or exemption could have far-reaching effects: if the coins are indeed labeled as NFTs, then that could lay the foundation for others transacting in crypto assets.


Have questions on crypto assets and/or securities law? Reach out!




Sources:

[6] 328 U.S. 293 (1946) (“The test is whether the scheme involves an investment of money in a common enterprise with profits to come solely from the efforts of others.”)

[7] Id. at 298-99

[8] See In the Matter of Impact Theory, LLC, File No. 3-21585; and In the Matter of Stoner Cats 2, LLC, File No. 3-21655

[9] SEC. Ripple Labs, Inc., 682 F.Supp.3d 308, 323 (S.D.N.Y. 2023)

 
 
 

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