CNBC’s Jim Cramer Says Dogecoin Is a Security. Is He Right?

In letter

• Jim Cramer is a prominent TV host and former hedge fund manager.
• He said DOGE would be regulated as a security.
• He implied that regulation is necessary to find out how many DOGE are being created.

When Web3 denizens complaining that traditional media doesn’t understand cryptocurrency, they might be pointing, as Exhibit A, to Jim Cramer.

Cramer, the one-time hedge fund manager and long-time host of CNBC’s “Mad Money,” today warned about the dangers of Dogecoin, over nine months after its price and popularity peaked. He tweeted: “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.”

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.

— Jim Cramer (@jimcramer) January 20, 2022

You can imagine what came next. In summary: People within the industry disagreed with all of his points.

In the tweet, the TV personality is perhaps alluding to the Dogecoin network’s penchant for printing a lot of new DOGE each day—14.4 million new tokens, to be precise. This makes it hard for demand to keep up with supply. By contrast, the Bitcoin network prints about 900 new BTC per day.

One problem with the tweet, however, is: We already knew that. The above figure, in fact, comes courtesy of The Street website, which Cramer co-founded. And how did The Street know? We’ll let Dogecoin co-creator Billy Markus explain: “Bro, please learn how blockchain works…It is in the public code on the public blockchain, easily viewable by anyone.”

But Cramer is also wrong about his claim that Dogecoin is a security, says Preston Byrne, a partner at Anderson Kill who specializes in decentralized protocols.

“When we ask whether a token is regulated as a security, properly an ‘investment contract,’ under US federal law, the question centers on whether the thing is a contract, transaction, or scheme involving the investment of money in a common enterprise with the expectation of profits arising from the efforts of a promoter or third party,” Byrne told Decrypt via email, referring to the the so-called Howey Test established by the US Supreme Court in the 1940s.

He continued: “Dogecoin’s anarchic, jokey start and the total lack of a central coordinating entity means that several of the Howey limbs are not satisfied, in my professional opinion.”

In other words: DOGE is not a security and wouldn’t fall under the Security and Exchange Commission’s purview. (If anything, it’s a commodity, and Byrne points out that the Commodity Futures Trading Commission, the SEC’s sister agency, has treated it as such.)

Indeed, Dogecoin started mostly as a joke, not as a money-making venture. Both of the people who launched the project—Markus and Jackson Palmer—have quite publicly abandoned it. It was only after Elon Musk took to Twitter to promote the project that it gained mainstream attention. The price went from a fraction of a penny to begin 2021 all the way to $0.73 on May 8 (when the Tesla CEO mentioned it on “Saturday Night Live”), before losing nearly 80% of its value over the following months.

Does $DOGE meet the definition of a security?

Considering that it is proof of work and the creator warns people that it is a joke and not to buy it, I would say no. pic.twitter.com/AC90Xj1JDb

— THE MAYOR OF MATIC (@MayorOfMatic) January 20, 2022

But maybe we’ve been hoodwinked by Markus, Palmer, or one of the part-time Dogecoin core devs now running the project. Perhaps they’ve been pulling the strings all along. In which case, you’d almost have to laugh.

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