Despite significant volatility over its 13-year history, cryptocurrency has become a financial phenomenon—with the value of a single Bitcoin growing to an all-time high of more than $66,000 in October 2021. Cryptocurrency adoption continues to grow, despite its reputation for unpredictability.
It is increasingly common to see cryptocurrencies as an option to pay for goods and services—and yes, even charitable giving. But even as they become part of everyday transactions, many individuals, businesses, regulators and other institutions are on a learning curve as they try to keep up with the breakneck pace at which the landscape is shifting.
So, what do these trends mean for the charitable sector? And how are charitably inclined investors approaching crypto donations? Fidelity Charitable conducted a survey to address these questions. What we found shows significant knowledge gaps about charitable giving tax strategies as they relate to cryptocurrency.
The popularity of cryptocurrency is on the rise, particularly among the philanthropic Millennial generation—and the trend could make serious waves in the charitable sector.
Significant confusion exists around the tax implications of selling cryptocurrency—even among those who own these assets.
A third of cryptocurrency investors have donated some of their cryptocurrency to charity—and their motivations are both head-based and heart-based.
As cryptocurrency rises in popularity and continues to appreciate, investors will be left with an increasingly significant tax burden. Now is the time to reckon with the financial implications of their investments and to consider potential tax strategies.
Charitably inclined investors will have more options to minimize their tax burden through charitable giving as the process of making cryptocurrency transactions is further streamlined. Donors may turn to giving platforms and other programs at nonprofit organizations, such as donor-advised funds, which can simplify the transaction for both donors and charities by accepting the crypto assets, selling them, and then making the proceeds available for grant recommendations. These solutions could make the process of donating cryptocurrency to charity smoother and enable more organizations to benefit from the trend.
As digital assets become more accessible, advisor help is needed to provide guidance and dispel myths related to the assets. And because cryptocurrency investors are often charitably minded, advisors should understand charitable tax strategies related to digital asset donations. Advisors should proactively initiate conversations around charitable planning so they can help clients identify the right asset to give at the right time to maximize their philanthropic impact and tax benefit.
This will only become more critical as advisors prepare for a massive intergenerational transfer of wealth. For Millennial clients—who are both disproportionately charitable and disproportionately active in cryptocurrency investing—being conversant in charitable strategies related to cryptocurrency is quickly becoming nonnegotiable.
While the landscape could be challenging for the charitable sector to navigate, digital assets are poised to become a strong source of funding for the future. The sector faces a variety of challenges—including navigating volatility, simplifying the process to enable seamless donations, exchanging donations to traditional currency easily, ensuring security for both organizations and donors, and more. In the face of so many tough questions—and with the number of cryptocurrency investors still relatively low—it would be easy to defer on engaging with the trend.
However, organizations that embrace cryptocurrency and allow donors to contribute digital assets will be well-positioned for the future—particularly as crypto-savvy Millennials come to make up a more significant portion of the donor base. And in the long term, the benefits will multiply as the popularity and value of cryptocurrency continues to rise.
For more on how investors are engaging with cryptocurrency and philanthropy, read the detailed results from our survey.
This report is based on a study conducted in July and August 2021 by Artemis Strategy Group, an independent research firm, on behalf of Fidelity Charitable. The study examined cryptocurrency and charitable giving among 1,216 investors in the U.S. who have a minimum of $25,000 in investable assets outside of an employer retirement plan.
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