Deep Dive into Cryptocurrency for Nonprofits

I’m sure you’ve wondered about this: Should we be accepting cryptocurrency?

You may not want to be thinking about this.

But now that there are actual payment processing platforms (e.g., The Giving Block; engiven; Crypto for Charity by Freewill and Charitable Solutions, LLC) and at least two nonprofits serving as cryptocurrency wallets (every.org and givewell) dedicated to helping you with this, the time has come. [You can compare some of the platforms and wallets here; new ones are springing up.]

Opportunity is knocking. Will you open the door?

Changes in Major Gift Demographics

Here are some of the trends:

• Dollars being given are moving from middle class to wealthy donors (especially from Boomers to Millennials).
• Fewer donors are giving larger impact gifts. There’s a lot of money out there[1], and if your charity is savvy enough to attract it, you’ll likely find your donor distribution shifting. The Pareto 80-20 Principle is more 85/15, 90/10 or even 95/5.
• More comes from appreciated assets than cash (stocks, bonds, land and cryptocurrency).
• The availability of crypto for giving has spurred new waves of younger people to consider philanthropy.

Profile of Donors Holding Cryptocurrency

Of course, there’s no way to know for sure which of your donors hold crypto.  But we do know some things.

Before You Begin

Consider that crypto is more a “donor demographic” than a donation method.

Start slow. Consider your target audience.

Matt Hayes, engiven co-founder, tells us portfolio size of current crypto owners averages just above $2,000, so perhaps these “average crypto holders” are not your most likely donors. They can be classified as “crypto dabblers.”

• Those who donate crypto tend to make large gifts (1-4 gifts/month; 4 to 5-figure gifts on average).
• Potential crypto donors are likely .5 – 1.5% of your donor base and got into crypto around 2015. As the number of crypto investors is set to double this year, that profile could change and your potential could rapidly increase.

Here are Some of the Trends

• 17% of the adult U.S. population owns Bitcoin — 46 million Americans.
• GenX (1960 – 1980) holds most of the crypto per a 2021 Gemini Exchange commissioned study.
• Over 60% of cryptocurrency users are under the age of 40. On average they’re 38 years old and make $111,000/year.
• 83% of Millennial millionaires own crypto.
• The number of crypto investors is set to double this year –Distribution broadly covers three decades, with 74% of cryptocurrency owners today falling between the ages of 25 and 44, with another 19% between the ages of 45 and 55.
• Donations of cryptocurrency to DAFs rose from $13 million in 2019 to $28 million in 2020 per Fidelity Charitable.
• The average crypto donation in 2021 was $10,455 per The Giving Block, a 236% increase over the previous year; these tend to be sizable gifts.
• 83% of Millennial millionaires have crypto.
• 50% more likely to give $1,000+ than any other demographic per Fidelity Charitable. They also found 45% of cryptocurrency investors donated to charities in 2020, compared to 33% of general investors.

How to Incorporate Cryptocurrency into Your Fundraising Strategy

Should your nonprofit decide to get in on the crypto boom, you’ll face questions about volatility, which currencies to accept, whether and when to convert them, and how to adapt your donor relations messaging. For some the issue of sustainability and environmental concerns may be a factor as mining cryptocurrency requires extensive server space and electricity usage, though it’s improving. Once you take a look at all the issues, you’ll want to develop strong gift acceptance policies that set expectations for handling “alternative assets” like crypto. These protect both you and your donors.

Since this is a massive paradigm shift, let’s take a look at what’s involved.

[In the second article of this two-part series will delve into what to do if you have a donor who wants to give cryptocurrency.]

Cryptocurrency Basics

You don’t need to know everything about how it works, any more than you need to understand how the internet works to use it; you do want clarity on the basics. You may be interested in taking a listen to this Nonprofit Hub podcast: What is Cryptocurrency? Explain it to me like I’m seven years old… Here’s some basic lingo.

Blockchain:

An overarching technology made possible by the internet. More and more applications are being adapted and used today.

Crypto:

This means digital money. It’s one use of block chain technology. In fact, it’s the “first use case” of this technology. It’s been the most successful and has gained the most traction. That’s why you’ve heard of it! It’s a fungible unit that can be exchanged for other like units. For example, bitcoin for dollars or fractional amounts of dollars. The custodian of the bitcoin has the value and exchanges it for like value.  The ownership record is stored on the centralized block chain ledger. This ledger rests on thousands of computers worldwide, so it’s highly resistant to tampering.

Bitcoin:

This was the first cryptocurrency. It’s one among many; there are thousands at this point.  This one is the most widely distributed (roughly a $750 billion industry as of this writing, though constantly in flux). The total market is 1.7 trillion as I write this article. How did it happen? It was invented (the rules and protocol in software code) in 2009, after the financial crash of 2008, due to distrust of the global banking system. GenXer computer scientists took up the torch and began to experiment.  2010 was the first transaction. Papa John’s pizza sold two pieces for $400 million in bitcoin. Crazy stuff! There will never be more than 21 million bitcoins produced by the protocol. They’re produced at a knowable rate at a known value. 2140 will be the 21 millionth, and no more will be produced after that time. The current ones will stay in circulation.

Ledgers:  

These represent authoritative, distributed (not a single centralized) records of ins (credits) and outs (debits) to different accounts. Ledgers show what the donor gave and to whom. Anyone can see this (Bitcoin.com/explorer). No names are included; just addresses. Every transaction has a unique transaction hash. The record shows how much was given. Anyone can validate this transaction occurred, and how much it was worth on that date/time. This record is an immutable, unique identifier. A change to one copy won’t match the thousands of others.

EXAMPLE: Let’s say I bought one bitcoin in 2015 for $100 (basis). Today it’s worth $45K. The IRS views bitcoin as property. It’s been held more than a year. If I sell it, I get 45,679. I know exactly what my gain is. The IRS views any exchange as a taxable event. This would be one triggering capital gains, and the donor should be reporting the exchange on IRS Form 8282. Coinbase reports all transactions to IRS with sales price only. It’s incumbent on the donor/accountant to report the basis. With stock, for example, the basis is easily discoverable. With crypto it’s more difficult, but buyers/sellers of crypto are under obligation to make “best efforts” to do this. “Did you buy or sell any cryptocurrency?” is on the IRS Tax Form. Ignorance of the law is no excuse.

Wallets:

This is how the donor gives custody. Wallets can be software, mobile, or hardware.  See more below in “How to Accept Crypto.”  Wallets, by the way, will become a giving trend in general post-pandemic.

Digitization of payment technology will be the most important trend coming out of the pandemic. According to Visa’s Payment Panel in 2020, we have seen a 10% increase of credit card usage for charitable giving spend and a 20% decline in check giving over the past five years. With options like Apple Pay, Google Pay, Visa Direct and other digital wallets, as well as improved online donation form experiences and QR code usage driving individual givers to donate online, this is a trend that will continue in the coming years. The digitization has also begun to extend into other giving channels like stock giving and donor-advised funds as well as a major increase in the adoption of cryptocurrency for affluent donors looking to support organizations.

— Tim Sarrantonio, Director of Corporate Brand, Neon One

How to Persuade Donors to Give Crypto

Cryptocurrency donations are treated as property by the IRS and tax-advantaged accordingly. This is an opportunity about which you want to make folks aware.

Donor Benefits

• Capital gains tax benefit: For appreciated cryptocurrency held longer than a year, donors can avoid capital gains tax they would have paid if they sold it, and still get the full value of the asset as an income tax deduction, by giving it to you.
• Income tax benefit: Donors can deduct the full fair market value, up to 30% of their adjusted gross income (AGI), from income tax. There is also a five-year carryover should they be unable to use the full tax deduction in one year.
• Transaction costs benefit: These tend to be much less than those for credit or debit cards, which according to the 2020 Global Trends in Giving Report was the preferred method of giving for 63% of donors worldwide. This can result in savings for the charity of roughly 2.2 to 6.75% per Charity Navigator.

Who to Target?

Look for the crypto enthusiasts already giving to you. You may be surprised! Thus far, there’s no correlation between the size of your organization or donor base and who may own crypto.

As we saw in the trends listed above, likely suspects include:

• Those who grew up with computer technology. GenX hold the largest store of crypto appreciated assets. This may be 0.5 – 1.5% of your donor base.
• People who bought between 2012 and 2018, when you needed technical know-how to buy it.
• Males age 18 to 45. According to Forbes and Digital Market News, 87% are under 55 (57% are age 26 to 40 and 30% are age 41 to 55). The current hotspots are San Francisco, Los Angeles, New York, Seattle and Chicago.
• People supporting causes online. Most cryptocurrency donations come from young, tech-savvy adults who support causes receiving more attention online.

Do NOT try:

• To convince already loyal donors to donate crypto instead of other assets. The point is not getting access to crypto, but making it easy and advantageous for every donor to give.
• To persuade people to buy crypto. You are not in the business of giving financial advice.

Innovation as the Leading Edge

This is a time for reinvention and a pioneering spirit.

Crypto is the fastest growing donor demographic.  Crypto users are philanthropic and impact-oriented.

How will you respond?

How will you make giving to you easy and convenient for these highly-motivated donors?

Stay tuned for the next article in this two-part series: “So Your Nonprofit Donor Wants to Give Cryptocurrency?” I’ll discuss (1) how to accept it; (2) how to promote it; (3) how to get leadership buy-in and overcome concerns.

NOTE: This article is for informational purposes only and not intended as legal or financial advice. Please consult your own professional advisors for the latest and most accurate information. This article makes no representations or warranties as to the accuracy or timeliness of the information contained herein. I learned a lot from Matt Hayes, engiven co-founder, and you should certainly feel free to contact him directly with any questions.

[1] For today’s purposes, let’s put aside the issue of whether you are comfortable with inequalities of wealth and wish things were different. If you have folks relying on you to deliver on your mission, you have the privilege and responsibility to generate the resources needed to fulfill your promises. Working within the prevailing zeitgeist, this may mean taking a thoughtful look at what it might mean to accept more gifts of assets generally and cryptocurrency specifically.

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Photo by Kanchanara on Unsplash