Cryptocurrency and the Future of Philanthropy

One of the biggest financial stories of the past few years is the meteoric rise of cryptocurrency as an increasingly popular, highly appreciated yet volatile investment opportunity. The market of digital currencies like Bitcoin and Ethereum is little more than a decade old but as of this month represents a market capitalization of over $3 trillion, far exceeding the value of the world’s largest companies like Microsoft, Apple, and Google.

And most of this growth is recent with cryptocurrencies quadrupling their value since the end of 2020. Bitcoin, by far the most popular cryptocurrency, was valued at $280 per coin in 2014 and this week is worth more than $47,000 per coin. (Why didn’t I buy a coin back then?!) Moreover, investors are more comfortable with these currencies as more coins are “mined” and new currencies are created. Data gathered this past summer suggests that over 14% of Americans own cryptocurrency (21 million people) with another 50 million likely to enter the market before the end of 2021.

What does this mean for philanthropy? How can nonprofits benefit from this exponential growth and encourage crypto-giving?  Here are three general strategies:

1. Make sure your organization can accept gifts of cryptocurrency.

Receiving a gift of cryptocurrency isn’t always straightforward. These currencies are exchanged over decentralized platforms like Coinbase that require “wallets” to receive coins. Happily for nonprofits, there are ways of receiving gifts of cryptocurrency that are more straightforward.

95% of current crypto-giving goes to Donor Advised Funds (or DAFs). So, a donor can give a gift of Bitcoin, for example, to her DAF and the charitable custodian of that DAF account—organizations like Fidelity Charitable—that will convert the cryptocurrency into US dollars and invest according to the asset designations of the DAF. Then the donor can advise the custodian organization to direct the funds to the charity of her choice.

Gift processing services like PayPal also now (as of November 2020) accept gifts of cryptocurrency, so if your organization uses such a service, most likely you can direct a donor to give through these platforms.

2. Make sure your donors know they can give gifts of cryptocurrency.

Many donors do not realize that they can give gifts of cryptocurrency, so educate them not only on how they can give but also in how advantageous it is for them to give highly appreciated assets like Bitcoin to avoid capital gains tax.

Moreover, encouraging crypto-giving is a creative way to reach a new (and most likely younger) group of donors. Since most early adopters of cryptocurrency are under the age of 40, nonprofits have a huge opportunity to engage these potential givers with the prospect of giving very large gifts at minimal cost to the donor. (Think what good I could have done with $47,000 if I had bought a Bitcoin in 2014 for $280!)

3. Finally, make sure you apply best practices to processing and acknowledging digital asset gifts.

As an appreciating asset, the IRS views gifts of cryptocurrency as gifts of property. Thus, nonprofits should apply the same best practices to receiving gifts of cryptocurrency that they have developed for receiving gifts of stock, another appreciating asset. Liquidate the gift (if that hasn’t already been done by the DAF or gift processing platform) and then use it to further your mission.

Nonprofits can’t afford to ignore this growing asset class. Use it to increase your giving, diversify the ways donors can give, and attract new givers to your worthy causes.

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