A tiny button in the middle of the
There are good reasons why the button has been largely ignored since late 2021 when the Gulfport, Mississippi, church became the first congregation in the Southern Baptist Convention to accept Bitcoin, Ethereum, USD Coin, and other virtual currencies. The donation process is complicated. Most churchgoers haven't even heard of cryptocurrency, and some fear it. One woman told Pastor Adam Bennett that Bitcoin is the "mark of the beast," a biblical allusion to the antichrist.
"I try to tread softly," said Bennett, a tech enthusiast when he's not preaching. "But I'm not going to let innovation leave me behind because I'm concerned about people's wrong opinions."
Back Bay's experience is playing out nationally as the current tax filing season comes to a close. Even the most ardent virtual currency advocates and tech-savvy charities concede that very few investors made donations in crypto last year, and anecdotal evidence suggests total donations were at least 30% lower than 2021. The downward trend reflects the reluctance encountered by Back Bay church, confusion over the federal tax rules governing charitable donations of cryptocurrency, and the collapse last year of digital asset values.
"Donations are going to be less common this tax year primarily because of the losses," said Lisa Zarlenga, a tax partner at Steptoe & Johnson LLP and a former tax legislative counsel at the Department of the Treasury. "Donations are good when you have built-in gains from your crypto, because you wouldn't have tax on your gain and you get to donate at fair market value."
Enthusiasts, however, remain bullish about the role that cryptocurrency could play in philanthropy over the next decade — assuming prices stabilize and digital assets work through some growing pains. They take comfort from the 82% rise of Bitcoin and 60% gain of Ether this year, even if sentiment in the notoriously volatile sector remains guarded.
"It's one of the best-appreciating asset classes of the last five or 10 years," said Alex Wilson, a co-founder of The Giving Block, a platform that facilitates cryptocurrency charitable donations. "So there are still a lot of people sitting on a lot of appreciated crypto."
Less than 1%
The American Cancer Society began accepting crypto in 2021, and donations took a dip when the crypto market had a tumultuous year in 2022. Although it is a small portion of the donor pool, the option gives donors more flexibility, said Kael Reicin, chief financial and strategy officer for the organization.
"We want to be able to basically receive donations any way they want to give us donations," Reicin said.
Hard data about charitable donations denominated in cryptocurrency is difficult to obtain. Philanthropy analysts speculate total donations are much less than 1% of the $484 billion given to U.S. charities in 2021 by individuals, foundations, corporations and charitable bequests.
"It's a very small number," said Una Osili, associate dean for research at Indiana University's Mays Family Institute on Diverse Philanthropy.
As an academic matter, however, Osili said she was struck by the rapid expansion in crypto giving between 2019 and 2021. Few if any charities had heard of cryptocurrency prior to 2019, but they were suddenly receiving a stream of inquiries and gifts. She attributed this "exponential growth" to the run-up in digital asset prices and crypto's ability to transcend international boundaries.
Probably the best proxy for crypto giving patterns comes from the web platforms Engiven, Every.org and The Giving Block. The platforms differ, but all three accept donations of non-fungible tokens — NFTs — and roughly 100 different virtual currencies on behalf of thousands of charities. The platforms charge fees of between 1% and 4% to convert virtual assets into U.S. dollars, deposit the funds into charities' bank accounts, and generate receipts and tax documents for donors and charities.
Giving trends
The Giving Block, which annually publishes charitable donation data, has processed $125 million in crypto contributions since it launched in 2018. The high-water mark for the platform came in 2021, when it processed $69.6 million in cryptocurrency — a 1,558% bump from the previous year. For 2022, its total crypto donations dropped to $50 million.
While Engiven doesn't publish such data, donations were 30% to 50% lighter last year, said James Lawrence, the platform's chief executive officer.
"Without exception, giving volumes of crypto last year were down year over year, which seems pretty obvious given the problems with FTX, Voyager Digital and Silvergate Bank," Lawrence said.
The ebb and flow of the crypto market won't hurt most charities because they are not reliant on crypto donations, said Ryan Raffin, a partner with Charitable Solutions, a planned giving risk management consulting firm.
However, a market downturn may sting nonprofits with relationships with longtime donors who have been funding gifts with crypto, Raffin said.
By other measures, however, both The Giving Block and Engiven said 2022 was an encouraging year for cryptocurrency and charitable donations. The Giving Block doubled the number of accredited charities using its platform, attracting another 1,052 nonprofits. In its 2023 annual
Meanwhile, Engiven recently facilitated one of the biggest crypto donations ever, helping Ethereum founder Vitalik Buterin donate $15 million in USD Coin to the University of California San Diego to establish the
Tax benefits
Zarlenga said charitable donations of cryptocurrency continue to be an attractive tax strategy for investors holding significantly appreciated assets, offering two benefits in one transaction.
Consider, for example, an investor who acquires a portfolio of cryptocurrencies at $5,000 and plans to unload the investment after it surges to $25,000, Zarlenga said. The $20,000 long-term capital gain could trigger as much as $4,760 in federal income taxes. If the investor donates the digital assets to charity, however, they escape the capital gains tax and capture a deduction that could reduce their federal tax liability by up to $9,250. Taken together, the investor could achieve more than $14,000 in tax savings.
Proper documentation for filing purposes can be tricky but isn't impossible, Zarlenga said.
Taxpayers donating more than $500 of crypto must complete IRS Form 8283, applicable to noncash charitable contributions. Donations of cryptocurrency north of $5,000 require the donor to complete Section B of Form 8283 and provide a qualified appraisal — a requirement that investors donating cash and publicly traded securities can ignore.
IRS guidance
The Internal Revenue Service provided
Zarlenga predicted investors and tax practitioners would work through these administrative issues over time, making cryptocurrency donations more familiar and efficient.
"As long as you are in a rising market, this is a good way to give to charity," she said. "The charities want to be able to accept donations from interested people. Some may not be cash rich, but they might have crypto they'd like to donate."
Charities, on the other hand, are more likely to view cryptocurrency more as a curiosity than a reliable source of revenue. Those views may change over time, but only if charities can insulate their organizations from gyrations in the cryptocurrency markets.
"There may be growth in the future, but there will still be volatility," Osili said. "The path forward is around managing the risk."
Immediate liquidation
Large charities are treating crypto similarly to other non-cash assets, liquidating the assets immediately, said David Lawson, a partner at Perkins Coie. If the immediate liquidation would have too much of an effect on the market, a nonprofit may liquidate over time. Very few charities will want to hold crypto in a "way that is not consistent with their overall investment strategy for management of their assets," he said.
The American Cancer Society, which partners with The Giving Block, doesn't take possession of any crypto donations. The charity instructs The Giving Block to sell the donation "as quickly as possible" and distribute the cash proceeds, Reicin said.
"We want to honor the donor's intentions," Reicin said. "That donor intended not to give us a speculative asset but to give us a certain value of resource."
— With assistance from Erin Slowey
