Emily Walker
Donald Trump’s entry into cryptocurrency through his meme coin, TRUMP, has prompted discussions about its legality. A detailed analysis by Anonwassielawyer, a notable attorney in the crypto and finance sector, clarifies that despite its unusual nature, Trump’s launch complies with current US securities regulations.
Memecoins: Is Trump Exploiting a Legal Loophole?
Provocatively, Anonwassielawyer starts by questioning legality: “Trump launched a memecoin valued over $70 billion from the US. Is crime legal now?” His analysis highlights that the legal precedent for such launches is well-established, hinging on the differentiation between securities and non-securities under US law. Memecoins typically lack real utility or profit-sharing, thus generally not qualifying as an “investment contract” per the Howey Test.
A token is classified as a security only if certain criteria are met, such as monetary investment in a common venture with a legitimate expectation of profits from others’ efforts. TRUMP, like many memecoins, does not satisfy these criteria, as highlighted in the analysis. It explains that if a token promises funding for a project expected to yield profits for investors, it would be classified as a security. Conversely, a token sold merely as a speculative asset without any underlying project or economic worth is not. TRUMP fits this latter description.
As Anonwassielawyer elaborates, “If I ask you to purchase a memecoin, we’re not thinking the proceeds fund any project. They’re for the seller, who believes the price will decline. You buy it anticipating that another buyer will purchase it at a higher cost. There’s no investment contract or intrinsic value. It’s purely speculative, hence—not a security.”
While the classification of memecoins appears straightforward, their implications for the broader crypto industry are more intricate. Projects aimed at genuine value creation encounter greater regulatory scrutiny. Tokens providing revenue, governance rights, or resembling conventional financial instruments are more likely subjected to securities law. This reality has prompted frustration within the industry, especially concerning the policies of regulators such as SEC Chair Gary Gensler. Anonwassielawyer points out, “Much of the resentment toward Gary Gensler isn’t merely because he enforces securities laws; it’s that he suggested all tokens might be securities when they aren’t necessarily so.”
The differing regulatory approaches with TRUMP and another Trump venture, World Liberty Finance (WLFI), underscore this regulatory divide. TRUMP operates as a speculative memecoin, while WLFI follows a rigorous compliance framework to align with US securities laws. For instance, WLFI’s token is designed to be non-transferable for at least 12 months to comply with Regulation D and Regulation S, which address sales to accredited investors and non-US individuals, respectively.
WLFI’s terms specify, “Future unlocking of WLFI’s transferability through protocol governance will only occur if it complies with applicable law.”
Additionally, the use of offshore entities—often mischaracterized as methods for evading regulation—adds another layer of complexity. Anonwassielawyer explains these entities exist for legitimate reasons, mainly governance and tax optimization. Since securities laws are jurisdiction-specific, establishing an entity in an offshore location like the Cayman Islands does not prevent compliance if their tokens are marketed to US individuals. Nevertheless, offshore setups can offer tax benefits, particularly by deferring tax liabilities related to token generation and transfer until the assets are integrated back into the country.
The insights from Trump’s crypto ventures reveal important yet concerning realities for the industry. Although memecoins may be at the market’s simplest level, they evade regulatory attention due to this simplicity. In contrast, projects aiming to provide significant utility must navigate a complex and inconsistent regulatory landscape. Anonwassielawyer stresses caution and compliance, stating, “Memecoins can be intriguing, but we must avoid fraud. The analysis for securities should be reasonable but allow for some flexibility. We still need to be cautious with tokens exhibiting security-like characteristics and adhere to the usual frameworks.”
As of the latest updates, TRUMP is valued at $39.26.