Advancing Philanthropy

The Future of Fundraising: The Rise of Cryptocurrency Giving

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huge stack of cryptocurrencies

Cryptocurrency reached and sustained a market cap of more than $2 trillion in 2021. While the asset class remains volatile, it is the fastest growing asset of the decade. With the addition of the first Bitcoin ETF and integration of crypto into everyday payments platforms, such as PayPal and Venmo, cryptocurrency is becoming increasingly integrated into people’s lives.

With its surge in popularity, cryptocurrency is poised to become a strong source of funding for nonprofits. It is also easier than ever to accept cryptocurrency, and nonprofits can explore many options to help unlock more generosity.

State of Crypto-Philanthropy

Each year, hundreds of millions are donated in cryptocurrency. Many nonprofits begin investigating cryptocurrency when interested donors show up on their doorsteps, but nonprofits should consider proactively integrating it into their fundraising strategy.

Cryptocurrency owners are highly charitable. According to a recent study by Fidelity Charitable, 45% of cryptocurrency owners donated $1,000 or more in 2020 to charity, compared to 33% of all investors. On Every.org’s donation platform, cryptocurrency donations recently surpassed credit card donations in total volume, leaving them second only to bank/ACH donations.

Source: Gemini’s 2021 The State of U.S. Crypto Report
Source: Gemini’s 2021 The State of U.S. Crypto Report

Donating cryptocurrency is highly tax-efficient, and more than half of crypto donors mentioned tax benefits as a motivator. Because the Internal Revenue Service classifies donated cryptocurrency as property, donating it is not a taxable event. This means donors do not have to recognize capital gains on donations of appreciated crypto. If they have held it for more than a year, they may even be able to deduct the fair market value on their taxes.

Unfortunately, more than half of cryptocurrency investors were not sure that they could donate cryptocurrency to charity. This is where fundraisers can become more proactive. By engaging donors to let them know that they can donate crypto—and educating them about the potential tax advantages—fundraisers can help donors apply their newfound wealth to the causes they care about.

In terms of demographics, nonprofits likely need not look any further than their existing donor base to find crypto donors. According to Gemini’s 2021 report on the state of U.S. crypto, an estimated 14% of U.S. adults (21.2 million) own cryptocurrency; 70% are relatively young, falling between the ages of 25 and 44.

“As investors—particularly millennials—combine their interest in digital currency with their charitable values, digital assets have the potential to become a significant source of funding for philanthropy,” said Tony Oommen, vice president of Fidelity Charitable. In its study, Fidelity Charitable reported that nearly nine out of 10 millennials (90%) say charitable giving is an important part of their lives, compared to 74% of the total population.

While Gemini’s study found that the average cryptocurrency owner is a 38-year-old white male making approximately $111,000 annually, the demographics are expected to shift. A remaining 63% of investors were “crypto-curious” and planning to purchase cryptocurrency within the next year, a majority of them being women.

Basics of Cryptocurrency

Cryptocurrency can appear daunting on a technical level as the field is constantly evolving. The good news is that nonprofits and fundraisers do not need a deep understanding of cryptocurrency to benefit from it. Still, a working knowledge can help teams talk to donors and better assess how this new asset class may affect the future of fundraising.

Essentially, cryptocurrency is digital money. The difference is that instead of being minted and regulated by an authority, such as the federal government or a central financial institution, it is generated through code and maintained through a decentralized network of computers. Instead of trusting banks to maintain a record of transactions, the transactions are recorded in a distributed ledger, such as a blockchain, and verified using cryptography. This means one person can send money to another person across the world without going through intermediary banks.

Market demand determines the value of a coin. With exchanges such as Coinbase and Gemini, many coins have high liquidity and can be converted to cash instantly. Most people have heard of the most popular coins—Bitcoin, Ethereum, or even Dogecoin. In fact, thousands of cryptocurrencies are in circulation today, with new ones being created daily. While many of the currently popular cryptocurrencies rely on a process called “mining”— validating cryptocurrency transactions on a blockchain network and adding them to a distributed ledger—and are criticized for being energy-intensive, other types rely on more energy-efficient mechanisms, such as “staking”—a process that involves giving your crypto assets to support a blockchain network and confirm transactions.

Ways to Accept Crypto Donations

The space is constantly expanding and changing, but it seems the asset class of cryptocurrency is here to stay. For nonprofits, third parties can help simplify the process of receiving cryptocurrency donations, ensuring both security and a seamless experience. Below are the four strategies that nonprofits can use, in order from easiest to hardest.

1. Intermediary 501(c)(3).

By accepting cryptocurrency through another 501(c)(3), such as a donor-advised fund (DAF), nonprofits can receive cash grants and avoid taking custody of cryptocurrency. The intermediary sends the tax acknowledgments, handles the accounting, converts to cash, files IRS Form 8282, and follows other evolving regulations related to cryptocurrency.

Typically, U.S-registered 501(c)(3) public charities are automatically eligible with little to no onboarding required; there are no new accounting or tax filing requirements. That means nonprofits do not have to take any additional risk and can enjoy a simplified process for cryptocurrency donations. While DAFs are only available to donors who hold an account, public charities can easily use free platforms like every.org to generate a cryptocurrency donation.

2. Crypto processors for nonprofits.

Payment processors that specialize in crypto donations set up wallets for nonprofits, through which organizations can accept and sell or hold cryptocurrency donations. Because the crypto donation is made directly to the nonprofit, the organization will need to handle compliance with regulations and set policies accordingly. The onboarding process is also more involved.

While they charge service fees, crypto processors simplify the process of accepting crypto, converting to cash, and sending out receipts; they may assist with marketing campaigns geared toward the crypto community as well. (Learn more: thegivingblock.com, engiven.com) This approach is preferred by nonprofits that want custody of the cryptocurrency or wish to integrate it more deeply into their fundraising.

3. Crypto exchange.

Many exchanges now offer checkout experiences with automatic conversion to cash. By going directly to the exchange, nonprofits can minimize fees. Note, however, that exchanges are frequently built for the general consumer without donations in mind, so minimal donor support is provided. On top of handling compliance, nonprofits will need to send out tax receipts and collect donor information. (Learn more: commerce.coinbase.com, bitpay.com/docs/donations)

This approach is preferred by nonprofits that want custody of the cryptocurrency and minimal fees and do not mind handling the administrative and operational work themselves. Usually, these services also provide an application programming interface that allows nonprofits with a development team to build custom donation experiences.

4. Your own wallet.

Any organization can create its own wallet to receive, send and store crypto. This is the most do-it-yourself—and most technical—option for accepting crypto donations. The organization will need to research the many different wallets and services available. After selecting one, the nonprofit will need to securely store the credentials, create policies for accessing the credentials, and manage donor and donation records.

This approach may be suitable for nonprofits that have special projects or requirements for their cryptocurrency or want to accept “altcoins” that other solutions do not support.

We have reached a pivotal point for cryptocurrency, where it is becoming widely adopted and owned by people but still can’t be used at many places. With so many ways for nonprofits to accept cryptocurrency support, fundraisers can spread knowledge to donors about the tax benefits of donating crypto and encourage them to use their appreciated coins for good.

Disclaimer: This article is for informational purposes only and not intended as legal or financial advice. Please consult a professional (accountant, attorney, tax advisor) for the latest and most accurate information. We make no representations or warranties as to the accuracy or timeliness of the information contained herein.

References

Tina RohTina Roh is the chief operating officer and a co-founder of Every.org, a 501(c)(3) charity building an accessible giving infrastructure to help every person and organization use technology for good. She studied computer science at Stanford University and has previously worked on nonprofit blockchain projects with her co-founders before they launched Every.org.

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