Although cryptocurrency has gone through extreme ups and downs over its 13-year journey, it has become a major player in the financial world.
For example, in October 2021, the value of a single Bitcoin reached a record high of over $66,000. Despite being unpredictable, more people are using cryptocurrency, and it continues to gain attention and adoption globally.
These digital assets are now not only used to buy goods and services, but are also becoming an option for donating to charitable causes.
However, while crypto becomes more common in everyday life, many people—including individuals, businesses, and government bodies—are still trying to understand how it works as the industry changes rapidly.
So, what do these developments mean for charities and nonprofits? And how are generous investors who believe in giving back using their crypto assets?
Fidelity Charitable conducted a survey to answer these questions.
The results revealed that there is still a big lack of understanding when it comes to using cryptocurrency for charitable donations, especially in terms of tax strategies.
Understanding the Current Crypto Landscape
Cryptocurrency is becoming more popular, especially with younger generations like Millennials. This shift could have a big impact on the charitable sector.
Right now, around 13% of investors own cryptocurrency. Of those who don’t own any yet, 20% are thinking about investing within the next year.
Millennials, in particular, are much more involved in the crypto world. About 35% of young investors already own digital assets, and among those who haven’t invested yet, half say they plan to start in the coming year.
While many people believe that cryptocurrency is just a passing trend, Millennials tend to have a more positive view.
Nearly 47% of young investors see cryptocurrency as a smart, long-term investment, compared to just 25% of the overall investor group.
At the same time, Millennials are also known for being generous. Nearly 90% of them say that giving to charity is an important part of their life.
This is much higher than the 74% of the general population who say the same. Also, 75% of Millennials consider themselves philanthropists, while only 45% of the wider population do.
If these young investors begin combining their crypto investments with their passion for giving, the nonprofit world could see a big rise in digital donations.
Confusion Over Crypto Taxes Still Widespread
There is a lot of misunderstanding about the taxes involved in selling or donating cryptocurrency—even among those who own it. Like other investments, if someone sells a long-term crypto asset that has increased in value, they have to pay capital gains tax.
Yet, 38% of crypto investors don’t realize that selling their digital assets can result in a tax bill. And when looking at all investors—not just those who own crypto—this number jumps to about two-thirds.
Many of these investors have seen huge gains in the value of their crypto, but they’re now unsure about what to do with the profits and how to handle the taxes.
Using Cryptocurrency for Charitable Giving
Even though people who invest in cryptocurrency tend to be more charitable, most of them are not familiar with the smart strategy of donating digital assets to charity—a method that can reduce the amount of taxes owed.
In 2020, almost 45% of crypto investors donated $1,000 or more to charity. That’s significantly higher than the 33% of all investors who gave at least that much.
However, despite being more generous, over half (55%) of crypto investors didn’t know that cryptocurrency can actually be donated directly to nonprofits.
Donating crypto is a tax-efficient move that allows the giver to avoid paying capital gains tax while still supporting a cause they care about.
About a third of crypto investors have already donated some of their digital assets to charity. Their reasons for giving were both practical and emotional.
Around two-thirds said they simply wanted to do something good with their crypto. Meanwhile, 56% said their crypto had gone up in value and 54% mentioned the tax benefits as a motivating factor.
Challenges with Donating Crypto
Even though many are open to giving, donating cryptocurrency isn’t always easy. Half of the investors who tried to give crypto said the charity asked for a larger donation than they wanted to make.
Nearly 46% had trouble finding a nonprofit that accepted crypto, and 44% said the donation process was complicated and frustrating.
Looking Ahead: What This Means for Different Groups
For Crypto Investors
As digital currencies become more valuable, investors will have to think carefully about how to handle taxes. This is especially true for those who have made large profits. Donating some of that crypto to charity is a smart way to lower their tax bill while also supporting good causes.
New solutions are making this process easier. For example, donor-advised funds and giving platforms can now accept crypto, convert it to cash, and use the money for grant-making.
This makes the entire donation process smoother and more attractive for investors who want to give back.
For Financial Advisors
As crypto becomes more common, financial advisors will play a key role in guiding clients through the world of digital assets.
It’s essential for advisors to understand how charitable donations involving cryptocurrency work, especially when it comes to tax planning.
Advisors should take the lead in talking to clients about charitable giving. Helping clients decide which assets to give and when can help them make a bigger impact and receive greater tax benefits.
This is especially important as Millennials, who are both generous and tech-savvy, inherit wealth from older generations.
For Charitable Organizations
Nonprofits may feel overwhelmed by the fast-changing crypto space, especially with concerns like price volatility, security, and the complexity of handling crypto donations. However, ignoring cryptocurrency could mean missing out on future donations.
Nonprofits that start accepting digital assets now will be better prepared as Millennials become a bigger part of the donor community.
Even though the number of crypto investors is still small, their influence is growing. Those nonprofits that are ready to engage with this new form of giving will likely benefit in the long run, especially as digital currencies continue to increase in popularity and value.
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