Ripple attorney warns Elon Musk his Doge pump tweets may get him in trouble

John Deaton, the founder of Crypto Law, the US legal and regulatory news site for crypto investors, tweeted that SEC might consider DOGE as an investment contract.

Elon Musk

Tesla CEO Elon Musk is known as an avid supporter of Dogecoin, who even proclaimed himself a “Doge Father.” An eccentric billionaire pitched a meme coin as a payment option for Twitter Blue services, and his chaotic tweets often make Doge surge in price. Even the $0.7 ATH of Doge is due to Musk’s appearance on Saturday Night Live, a famous American TV show where the billionaire called Dogecoin an "unstoppable financial vehicle that is going to take over the world."

On May 27, Elon Musk announced that SpaceX would accept Doge as a payment option for its merchandise. Although meme coin predictably added 5% the same day, the tweet failed to trigger a new rally.

Deaton’s warning came after he responded to a tweet from an investor complaining about SEC Chair Gary Gensler's unfair treatment of Doge and XRP. The protracted legal brawl between SEC and Ripple started because the former deemed its native token XRP an investment contract and thus security instead of a commodity like other cryptocurrencies. If the same were to happen with Doge, Elon Musk would get in legal trouble as a promoter of an unregistered security.

To determine whether a particular cryptocurrency will be considered an “investment contract” and, therefore, security, SEC applies the Howey test consisting of three questions:

  • Is there an investment of money with the expectation of future profits?
  • Is there an investment of money in a common enterprise?
  • Do any profits come from the efforts of a promoter or third party?

If the answer to these questions is “yes,” cryptocurrency is considered a security.

"If somebody is raising money selling a token and the buyer is anticipating profits based on the efforts of that group to sponsor the seller, that fits into something that's a security," said Gensler. At the same time, Bitcoin is considered a commodity under the Commodity Exchange Act and is regulated by the U.S. Commodity Futures Trading Commission (CFTC), not SEC.

According to Gensler, crypto is determined to be a commodity if it “doesn't have an issuer, doesn't have one party sitting there behind it, and the public's not anticipating [returns] based on the efforts of that one party.” Following this reasoning, most proof-of-work cryptocurrencies, including Doge, fall under the definition of a commodity and may take a breath of relief – SEC regulations won’t apply to them.

On the other hand, ICO cryptocurrencies may already start worrying about their legal status. If the ruling goes in favor of the SEC, they may be subjected to huge fines and massive penalties that will send a shockwave across the market. If Ripple wins, that will boost XRP’s and other altcoins’ prices. In both cases, we can expect more clear rules on which cryptocurrencies are securities and which ones are commodity tokens.