With the rise of cryptocurrencies like bitcoin and Ethereum, some investors in the speculative digital asset have also started donating cryptocurrency to nonprofits. For many nonprofit organizations, accepting a cryptocurrency donation can be complicated or unexpected. So what is crypto philanthropy and what do you need to know about donations of cryptocurrency to your nonprofit?
Cryptocurrency is a form of digital or virtual currency that is secured through cryptography. This kind of currency is almost impossible to duplicate or spend twice, and often exists on a decentralized network of computers. This decentralized network prevents government or institutional interference or regulation, which many investors find appealing.
New cryptocurrencies seem to appear every day, but the field is growing. Staples like bitcoin and Ethereum have been around for a long time, but newer currencies often gain interest from investors because of the potential payoffs of getting in early. When investors do time a currency well and make a significant return, giving some of their cryptocurrency to a charity can be a great way to avoid a serious tax bill and give back to their community.
Why Is Cryptocurrency Important?
Investing in cryptocurrency has grown in popularity over its history, with younger investors much more likely to own some cryptocurrency or consider buying some in the near future. A majority of millennials either already own cryptocurrency or are thinking about purchasing it, a much higher percentage than the general population1.
Millennials are less likely to be skeptical of cryptocurrency. Most believe that there are some long-term possibilities of options like bitcoin or Ethereum. As one of the most giving generations (75% of millennials donated during the pandemic), millennials are more likely than any other generation to be interested in donating cryptocurrency to nonprofits they support.
The amount of cryptocurrency donated on Crypto Giving Tuesday increased exponentially in 2021, with $2.4 million in crypto gifts processed on a single day and an average gift of $12,6002. While crypto philanthropy is still a young area of donating to nonprofits, it has potential for extreme growth.
While bitcoin and Ethereum are some of the best known cryptocurrencies, nonprofits should be prepared for all sorts of crypto philanthropy. Newer cryptocurrencies like dogecoin can skyrocket in value overnight—that kind of overnight financial success can make an investor interested in giving back by donating cryptocurrency directly to a nonprofit.
Like many assets, cryptocurrency has different tax liability depending on how long you’ve held the asset. Assets held longer than one year are taxed differently, which can impact your tax bill. If you’re planning on donating cryptocurrency to a nonprofit, the donation can help offset your tax liability. For investors who earned large returns on cryptocurrency, donating cryptocurrency to a cause they care about can be a great way to make a difference and reduce their tax bill.
Transfering cryptocurrency isn’t as simple as inserting some credit card information. The level of security that makes cryptocurrency so desirable also makes it difficult to transfer ownership. Whitelisting, which involves adding a new authorized user to the cryptocurrency, can take some time, so make sure you build flexibility into the process whenever you are accepting or giving a cryptocurrency donation to a nonprofit.
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Donating cryptocurrency to a nonprofit can have multiple benefits for donors. Many donors give primarily out of desire to make a positive impact in their community. For some cryptocurrency investors who have seen significant gains, donating some of their cryptocurrency can be a way to share their success and make a difference in the world around them. According to one survey, two-thirds of cryptocurrency investors who donate cryptocurrency to a nonprofit do so out of a desire to positively influence their community3. Others see donating cryptocurrency to a nonprofit as a way to minimize their tax bill. Whatever the motivations of your donors are (and they may have more than one), making sure you know how to receive cryptocurrency donations as a nonprofit is important.
Effective software for your nonprofit is important to allow you to receive cryptocurrency. Tools like DonationXchange can help you create easy, streamlined processes to accept cryptocurrency donations to your nonprofit and make crypto philanthropy an effective part of your fundraising strategy.
If an investor is interested in crypto philanthropy, having a clear process for them to reach out about donating cryptocurrency to your charity is important. While some potential donors may be willing to do additional research or reach out separately to find out how to donate their cryptocurrency to your cause, others will be frustrated that it requires extra work on their part to support your nonprofit through donating cryptocurrency.
Make sure to include options for donating cryptocurrency on your website as well as a simple way to contact your fundraising department to discuss how to donate cryptocurrency to your nonprofit.
Some investors who want to engage in crypto philanthropy have faced challenges with the nonprofits they are trying to donate cryptocurrency to4. Some nonprofits have minimum requirements for the amount of cryptocurrency they will accept—while this may be to avoid the extra work that cryptocurrency donations may entail, it can be a significant pain point for potential donors who want to support your cause. Setting some kind of minimum donation amount may be helpful, but avoid making your minimum too high and frustrating potential supporters.
While accepting donations of cryptocurrency to your nonprofit may feel like extra work or something outside your comfort zone, it has the potential to connect your cause with new supporters—especially younger ones—that may be able to contribute substantial amounts to your organization. Cryptocurrency donations can be another income stream for your nonprofit and help you make a greater impact in the community.
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