2020 was a turbulent year filled with economic crashes, political turmoil, and an ongoing pandemic. With so many challenges, many not-for-profit organizations might be falling short of fundraising goals through traditional donation methods. However, as we adopt a more virtual, online approach toward business and interaction, there is a monetary opportunity that many organizations are missing out on: cryptocurrencies.
What is Cryptocurrency?
Cryptocurrencies are digital assets, typically represented by digital tokens assigned to owners and backed up by various codes. The originator and most well-known of all cryptocurrencies is Bitcoin, created in 2009. But today, there are thousands of alternative cryptocurrencies with various functions and specifications. Cryptocurrencies are much like traditional stocks, with demand determining the value. During the course of 2020, the total market cap of cryptocurrencies ranged from between $200 billion to $400 billion, which represents a large amount of untapped fundraising potential. Unfortunately, approximately only 2% of organizations are set up to be able to receive these types of donations.
All not-for-profit organizations are aware of Giving Tuesday, the unofficial holiday following Black Friday and Cyber Monday. What many are not aware of is BitCoin Tuesday, built around a concentrated 2019 campaign and hashtag push (#BitCoinTuesday) to promote crypto giving, a trend we can expect to grow in 2021 and beyond. On average, about $300 million of donations in cryptocurrencies are made each year. The donors tend to be Millennials or Gen Z, a younger demographic than traditional donors, but one of the fastest-growing.
So, how would an organization take advantage of this untapped market of potential donations? It’s actually fairly simple. To effectively use a cryptocurrency requires two things: a digital wallet and registering on an exchange. The digital wallet is much like an actual wallet, except it records your holdings of cryptocurrencies using unique and complex codes. The various wallet programs allow the owner to use cryptocurrencies for purchasing goods or paying for services. Registering on an exchange, allows not-for-profits to sell cryptocurrencies for dollars. Much like stock exchanges or currency traders, there are numerous exchanges, all of which will have slightly different prices for cryptocurrencies. Some exchanges also include the added convenience of having wallets as part of the services they provide. It will be up to the organizations to find a specific one that fits their needs, much like they choose what company holds their traditional investments.
Another option to get into the cryptocurrency market is a company called The Giving Block. This company was formed to help not-for-profit organizations tap into the crypto market. They provide assistance in setting up the wallets and exchange accounts, tracking donor gifts, providing gift receipts, and cryptocurrency-focused fundraising assistance. This can provide an easy all-in-one solution for those wishing to get involved before the donation rush seen at the end of the year.
Cryptocurrency Donations and Taxes
A final advantage of cryptocurrencies is their treatment for tax purposes. The IRS has ruled that all cryptocurrencies are property- just like stocks. And so, they are to be treated the same way as a stock that is donated to a not-for-profit. This allows the donor to avoid paying capital gains from the donation, which can be a powerful incentive. The donor should get the donation appraised by a qualified appraiser and speak to their tax advisor to ensure all required aspects of donating cryptocurrency are met. The organization can use its own exchange to record the donation’s fair-market value for accounting purposes. Then it is the organization’s choice to keep the cryptocurrency as an investment or liquidate through the exchange.
Though the challenges from 2020 are still ever-present, such times also present opportunities. And now would be the perfect opportunity for a not-for-profit organization to allow cryptocurrency donations and in doing so, build a connection with the next generation of donors.