A few weeks ago we published the first article of our 12-part article series on legal analysis of the then-current top 12 cryptocurrencies. Although Dogecoin (DOGE) was not intended to be included in the series, we felt a duty to react due to many demands from our network as well as the strong hype around DOGE during the last few weeks.
Hereby we are pleased to provide our loyal readers with additional content in the form of a brief legal analysis on DOGE – one of the most hyped cryptocurrencies of 2021 to this date.
Dogecoin in a Legal Nutshell
Dogecoin was created in 2013 by the software engineers Billy Markus and Jackson Palmer as a fork of the source-code of Litecoin. DOGE is a decentralized peer-to-peer cryptocurrency enabling easy money transfers – ‘a peoples crypto’, as some of us like to say. Considering that DOGE was originally developed to be nothing more than a funny joke (e.g., a meme coin), its current market cap of USD 7.4 billion is remarkable and fascinating.
As celebrities, such as Elon Musk and Snoop Dogg, currently create a strong hype around DOGE in the social media sphere, it remains to be seen how far DOGE’s market cap and use case will expand this year. One could claim that DOGE’s future still depends on the random acts of social media rock(et) stars rather than the actual characteristics and use case of DOGE, but as with any other cryptocurrency, one major use case could ensure DOGE’s permanent foothold in the industry. However, this far DOGE has mainly been used as a form of tipping on social media platforms and in fundraising – not to mention the wide-ranging speculation purposes DOGE offers.
U.S. Regulation of Dogecoin
According to the Financial Crimes Enforcement Network’s (FinCEN) interpretation, cryptocurrencies such as DOGE fall within the Bank Secrecy Act’s scope of application. Although FinCEN does not consider cryptocurrencies as legal tender, it considers cryptocurrency exchanges – such as Binance and Kraken – being money transmitters, and thereby included in its jurisdiction.
As we already mentioned in our earlier article considering USDC, it is hard to find a uniform regulatory approach to cryptocurrencies in the U.S. The legislation varies between states, and even federal authorities have different interpretation on the definition of ‘cryptocurrency’. The Securities and Exchange Commission (SEC) has been indicating that it considers cryptocurrencies to be securities whereas the Commodities Futures Trading Commission (CFTC) encompasses cryptocurrencies to be commodities as described in the Commodity Exchange Act.
Meanwhile the Internal Revenue Service (IRS) sees cryptocurrencies as property and has issued tax guidance on the matter. These inconsistent viewpoints make the U.S. cryptocurrency legislation unclear and leave cryptocurrencies in an ambiguous legal territory with various federal authorities claiming jurisdiction at the same time.
EU Regulation of Dogecoin
Within the EU, DOGE has a clearer regulatory situation than in the U.S. as the EU cryptocurrency legislation is more coherent than in the U.S. Being an altcoin, DOGE falls within the scope of the EU Fifth Money Laundering Directive (5AMLD) and is considered a cryptocurrency. Therefore, DOGE is from a starting point subject to conventional EU regulation on customer due diligence, risk assessments, Fit & Proper as well as other applicable national legislation. Another question is naturally who the actual subject of the regulation is as DOGE is – as the majority of cryptocurrencies – decentralized, but luckily for the average Dogenaut hodling DOGE the current regulation does not in any way affect the trading activities.
Nevertheless, as certain EU Member States (e.g., Finland) have implemented stricter cryptocurrency frameworks than demanded by the EU legislator, forum shopping is also occurring in Europe – typically to get advantage of lighter capital requirements and compliance standards.
However, from a longevity standpoint it is recommendable to comply with the stricter cryptocurrency legal frameworks as an upcoming EU Regulation is going to make the EU-wide cryptocurrency requirements quite similar to those of the stricter legal frameworks. You can find more information on the upcoming EU cryptocurrency regulation from our previous article.
Lastly, we leave you with Elon’s tweet. A picture tells more than 1000 words.