Intro

Security in a financial context is a tradable financial asset that includes financial instruments like stocks, bonds, options, futures, etc. The actual definition of what constitutes a security varies by jurisdiction.

For this article, we will focus more closely on what constitutes security in the USA and which crypto has less/higher chances of being categorized as security in the USA.

Some Background

The reason for this exercise is price prediction. Crypto in its current state still hasn’t had as much of an adoption, especially from the institutional side for several reasons. One major reason among them is that a lot of institutional capital is with institutions that operate in the USA.
The securities in the USA are regulated by a body called the SEC. The current SEC in the USA, headed by Gary Gensler has an anti-crypto stance and there have been multiple crackdowns by them to put an end to the defi industry.

You can find out about most of the actions taken by the SEC by searching ‘Operation Choke Point’ or ‘Operation Choke Point 2.0’ and surfing from there.

Back to Topic

One of the major angles that the SEC has in this crackdown is that it sees most of the crypto assets as securities. Because of this institutions have been more cautious about purchasing any crypto asset that has a higher chance of being categorized as a security by SEC. The reasoning is, that this would end up in the security tokens getting delisted from CeFi exchange assets followed by a price drop.

Hence, tokens that have a higher chance of being categorized as Security according to the USA laws see lower price action every time the SEC doubles down on its efforts.

What is security in the USA?

According to USA laws, any financial instrument that clears the Howey Test qualifies as a security. 

What is the Howey Test?

The evaluation of an asset or a transaction by the Howey Test consists assessment of the following four criteria:

1. Investment of Money
    
2. Expectation of Profits
    
3. Common Enterprise
    
4. Through the efforts of the promotor/3rd party
   
    

You can read in detail about each of them separately but the TLDR is that it’s the 4th criterion where the main contest between SEC and the Crypto Industry is.

The SEC’s case suggests that any Crypto Currency that does not work on the Proof of Work consensus mechanism and which did not have a fair launch should be considered as a security.
A win for SEC in this contest will result in the delisting of all such tokens from CeFi exchanges and hence would bring a downward price action.

Conclusion

This also means that native coins of projects that run on the Proof of Work consensus mechanism and that have had fair launch have somewhat of an immunity from these actions of SEC. Time and again we have seen a positive rally in these tokens when there is a negative price action on other tokens due to SEC’s efforts.

Security Doggers is a crypto basket that contains the top such coins by market capital which satisfy the conditions for not getting categorized as a security in the USA.