“Dogecoin a security”, Jim Cramer’s warning
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Jim Cramer has warned his followers about Dogecoin, claiming that it is a security.
The famous television host of the CNBC network with his Mad Money has triggered the web.
Is Dogecoin a security? The debate
It all started from a tweet by Jim Cramer:
“Please be careful with Dogecoin… It is a security. It will be regulated. We will find out how many there are and how many are being created each day to make money for the exchanges”.
These words sparked an uproar. Among the retorts to the tweet, also that of Billy Markus, creator of Dogecoin, who in a couple of tweets said:
“Bro, please learn how blockchain works. It’s already well known how many there are and how many are created everyday. It is in the public code on the public blockchain, easily viewable by anyone.
In terms of “security,” it is a Proof of Work cryptocurrency, so you have to put in work to retrieve the coins from the block, it doesn’t qualify under the Howey Test. it works the same as Bitcoin. In fact, it’s 99.5% the same code as Bitcoin. Please educate yourself”.
In short, from a technical standpoint, Dogecoin works like Bitcoin, partly because it started out as an emulation of BTC in a satirical way. Moreover, how much Dogecoin is mined is not a mystery because it is written in the code of the blockchain.
As for whether or not it is a security, Billy Marcus recalls the Howey test.
The Howey test
Its founder claims that Dogecoin is not a security because it does not meet the Howey test. This is a test that the law of the United States has applied since 1946 to define if an asset is a security.
It is based on 4 criteria:
- the existence of an investment contract;
- the formation of a business;
- the promise of a profit;
- the work of third parties to promote an offer.
Thus, it is a security if there is an investment of money in a business with the expectation of making a profit through the efforts of others.
Applied to the letter these criteria are not met by Dogecoin, which is not an investment contract, is not even a business, does not promise profits and its success depends on the effort of the developer to create use cases and interest that can increase the price.
Are cryptocurrencies securities?
Jim Cramer’s tweet reopened a thorny debate in the cryptocurrency industry, namely: are they securities? Because if so, their sale would be illegal as they would have to be registered with the SEC. That’s the reason that led the Securities and Exchange Commission to sue Ripple for selling XRP tokens.
But the SEC itself seems to be confused on the subject. Former Chairman Jay Clayton for example had stated in 2018 that Bitcoin was a currency that aspired to replace other currencies, so it was not a security. When asked if Ethereum was a security, on the other hand, current president Gary Gensler did not answer, but his words hinted that any ICO should be considered as a sale of securities (and therefore Ethereum would be a security too, given, that it financed itself with an Initial Coin Offering).
In short, the debate remains open, and it will be the law to establish once and for all if cryptocurrencies are to be considered as securities or not. Specifically, the ruling on the SEC-Ripple case is destined to set the standard, but according to some, a ruling is still far away: we will have to wait until September 2022.
Cryptocurrency
