There is more to SEC’s recent Memecoin guidance than meets the eye. On February 27, the staff in the SEC’s Business Financing Department issued guidance, which explained that Memecoins – as SEC described as digital assets “inspired by Internet memes, characters, current events or trends that the promoter is trying to attract an enthusiastic online community” – is generally not sold as securities.

This is in line with SEC’s shifts away from the efforts of former President Gary Gensler to demand regulatory power over virtually the entire digital active industry, and it could have consequences for the industry that goes far beyond Memecoins.

SEC’s attempt to regulate digital assets under the Biden administration is largely hanging on the Supreme Court’s so-called “Howey Test” to determine if a transaction involves an “investment contract.” Howey requires an investment of money in a joint company with an expectation of profits from the efforts of others.

In SEC’s enforcement measures against exchanges with digital assets, the defendants claimed that the secondary market resale of digital assets lacks the necessary “investments in money in a joint business” because investors’ funds are not “gathered” by developers to a common fund and then used to promote a company where investors share the overview. In SEC’s case against Kraken, for example, the agency told a federal court that “pooling of resale proceeds” of a developer is not “Required under Howey.”

SEC’s new guidance confirms the opposite. It says buyers of Memecoins do not invest in a joint business because their funds “are not gathered together to be deployed by promoters or other third parties to develop the coin or a related business.” The guidance also explains that Memecoin buyers do not expect profits derived from the efforts of others, another Howey requirement. Rather, the value of Memecoins comes from “speculative trade and the collective mood of the market, as a collectible object.”

SEC’s Memecoin Guide is clearly the consequence of the sale and promotion of Memecoins, which is the subject of recent private class actions brought by individual plaintiffs. But it has broader consequences for all transactions on secondary marketing in digital assets, including on stock exchanges. In secondary market transactions on exchanges, buyers’ funds are collected in the same way “not together to be implemented by promoters or other third parties to develop the coin or a related business.” Thus Sec now appears to acknowledge that during a proper use of Howey Tests, these transactions are beyond the reach of the agency, which the defendant has consistently argued in the SEC’s prior enforcement cases.

This doctrinal turn may be part of the driving force behind SEC’s recent decisions to voluntarily reject more cases involving secondary marketing transactions and to remain additional procedures in others.

To be sure, SEC’s new guidance includes statements that it “represents the views of [agency] Staff, “not necessarily the SEC itself, and that the declaration” has no legal strength or effect. “SEC also tried to limit the guidance to“ Offers and Sales of MEME coins ”under the specific circumstances described elsewhere in release.

The agency could try to use these boiler plate considerations to twist out of the guidance at some point in the future. But constitutional principles of proper process and fair message may limit the ability of the agency to impose retroactive responsibility based on any future flip-flop. Although SEC’s guidance is not binding on courts, SEC’s change in position by pooling will make it difficult for private plaintiffs to claim that most digital assets are sold as securities.

SEC’s guidance on Memecoins is in line with the agency’s other recent steps to withdraw from regulation for the enforcement method that plagued the industry under former President Gary Gensler. And the guidance gives welcome clarity from the agency in an area where the agency’s prior approach had significantly muddied waters. In short, it is a significant step in the right direction for cryptoco tents and politics in the United States.