Cryptocurrency is highly volatile, but it’s also become a major (and increasingly mainstream) investment vehicle for many people, including some of your donors and prospects. Although it might not be on your nonprofit’s radar yet, it should be. Crypto is creating significant new opportunities for organizations to grow their support and diversify their funding.
But as with any new form of giving, you have to weigh the investment of your time and resources before diving in headfirst. Why invest in pursuing crypto donations? Will it be worth it? Who donates crypto to charity, anyway? Let’s take a look.
Crypto Donations: Quick Background
For the crypto newcomers, here are a few quick FAQs:
What is cryptocurrency?
Cryptocurrency (crypto for short) operates as a kind of decentralized virtual money. There are thousands of individual cryptocurrencies actively traded today, most notably Bitcoin. Although initially intended to be used as an actual replacement for centralized currencies, crypto functions mainly as an investment asset today.
Is it risky?
For nonprofits that want to accept these donations, crypto isn’t particularly riskier than accepting other types of assets with volatile values like stock. This is why immediately liquidating these gifts is usually the best policy.
However, crypto does bring unique considerations. It’s fairly unregulated, essentially serving as a security but not fully regulated as such. Crypto owners do pay capital gains taxes on sales of their assets, though. It’s also inherently anonymous, sometimes used for illegal online transactions, and has negative environmental impacts due to the large amounts of energy needed to generate it.
Nonprofits should take all of these factors into consideration when choosing to start crypto fundraising programs.
What are the logistical and tax considerations of accepting crypto gifts?
Logistically, you’ll need to take special steps to accept crypto donations:
- Set up a crypto wallet or use a donation platform specifically designed to streamline the crypto acceptance process.
- Establish cryptocurrency acceptance and liquidation policies. Crypto should ideally be liquidated immediately. Dedicated platforms can handle this step for you.
- Educate your fundraising team about the distinctions and nuances of cryptocurrency, including their tax implications for donors.
In terms of compliance, nonprofits should be aware of these requirements:
- Since cryptocurrency is not fully regulated as a security, its reporting requirements will be different from those for gifts of stock. Crypto gifts are instead considered “charitable deduction property.”
- After selling crypto within three years of receiving it, you must file Form 8282 with the IRS within the next 125 days. This rule generally applies to all gifts of donated property valued at over $500.
- For larger crypto gifts worth $5000 or more, you must also sign Form 8283 for the donor so that they can claim a deduction.
So, crypto is a unique form of giving that’s probably brand new to your nonprofit. With the extra knowledge, tools, and reporting requirements they bring, is it worth accepting these gifts? Let’s take a closer look at the three biggest reasons why crypto gifts are so valuable for nonprofits.
Reason 1: Non-cash giving drives growth.
Accepting non-cash gifts drives considerable growth for nonprofits of all sizes. One study compared growth in fundraising totals over five years among different cohorts of nonprofits:
- Nonprofits that received only cash gifts grew by 11%.
- Nonprofits that received any non-cash gifts grew by 50%.
- Nonprofits that received donated securities grew by 66%.
Expanding the range of gifts that your nonprofit actively solicits and accepts inherently opens up more giving possibilities. It creates more potential conversations with prospects, often appeals to wealthier donors, and taps into additional giving motivations. These opportunities are growing bigger than ever as donor habits shift in today’s economy—take the meteoric rise of donor-advised fund (DAF) grants, for example.
For crypto specifically, know that many crypto owners treat their holdings as securities, as they buy, hold, and sell crypto like stocks. By simply making crypto donations a known option and taking steps to accept them, you can raise more for your mission.
Reason 2: Non-cash gifts are often larger.
In many cases, a non-cash gift of crypto, stock, a DAF grant, or even real estate will have a much higher value than the cash donation that same donor would be willing to give. Why?
- As mentioned above, non-cash gifts tap into donor generosity differently than cash. These assets are usually saved wealth, and gifting them won’t affect a donor’s day-to-day cash on hand, meaning they’re often more generous or open to larger solicitations of non-cash gifts.
- Since these gifts don’t impact daily cash flow, donors are more motivated by tax savings when it comes to non-cash assets. They’re often happy to pass the tax savings onto your nonprofit by donating it to you directly.
Let’s take a closer look at how tax implications can motivate larger non-cash gifts.
Let’s say a donor wants to donate a $33,000 crypto holding that they initially purchased years ago for $5,000. If they sell the crypto, pay capital gains taxes (roughly 20% or $5,600), and donate the remaining proceeds, your nonprofit would receive $27,400 and the donor would claim the same amount as a tax deduction.
But if the donor gifts the crypto to you directly, they won’t pay capital gains taxes. When your nonprofit liquidates the crypto at $33,000, you and the donor will walk away from the donation with much larger benefits—a bigger gift and a bigger tax deduction. (A great motivation for donors to set up recurring gifts of crypto, too!)
Reason 3: Crypto helps you reach new donor pools.
Non-cash gifts generally help you connect with broader segments of prospects because they might not have previously been on your radar. Donors who own large stock or crypto holdings, for instance, may be overlooked in your prospect research process if they don’t demonstrate other highly visible wealth markers.
Connect with these prospects and explain the benefits of non-cash giving as a way to make a huge impact and save on taxes without affecting disposable income. Educate them on how to donate non-cash gifts to reduce friction in the experience. You’ll have then reached brand new pools of potential mid-level and major donors.
Who donates crypto to charities?
In terms of donor demographics, crypto is unique.
While all kinds of people own stock, crypto ownership is more centralized among particular groups that many nonprofits historically struggle to connect with. A 2023 Pew study found these trends in crypto ownership:
- 25% of adult U.S. men and 10% of U.S. women have invested in, traded, or used crypto.
- Zooming in, 41% of men ages 18 to 29 say they have invested in, traded, or used cryptocurrency, compared with just 16% of women.
- Non-White respondents were more likely to report owning or investing in crypto than White respondents.
- Upper incomes are better predictors of crypto ownership than middle and lower-range incomes, although not drastically (22%, 19%, and 13% of U.S. adults, respectively).
For organizations that want to reach more men, people of color, and/or younger donors, crypto warrants attention. This is the investment vehicle of choice for many potential donors in these groups, so meet them where they are by promoting crypto giving options.
To start accepting crypto gifts, your rollout strategy needs these essentials:
- Training on crypto basics for your fundraising team
- Mentions of crypto donations on your website, perhaps with a dedicated web page
- A plan for promoting cryptocurrency to donors both broadly with general mentions and more specifically with messages sent to particular donor segments (like the demographics discussed above)
- A crypto giving tool that can automatically liquidate crypto donations you receive
The best thing you can do to streamline the launch of a crypto giving program is to take the guesswork out of the logistics. Crypto can be complicated for newcomers because of three key elements: the donation experience, the liquidation process, and reporting compliance. The right tools will resolve all of these pain points.
Pro tip: If you take the time to educate your team about crypto, make sure everyone is confident speaking about DAFs, too! Donor-advised funds are the most prominent new giving trend for nonprofits. Overlapping segments of savvy philanthropy-minded individuals are highly likely to have DAFs, own crypto, and be willing to donate stock—the non-cash gifts that can fuel unprecedented growth for your mission.