Nonprofits accept cryptocurrency as Bitcoin and Ether values spike – is it a fad or the next frontier?
As the values of Bitcoin and Ether are hovering near record highs, America’s nonprofits are in the peak months of their annual fundraising. Some charitable organizations are hoping to bring those two events together to boost coffers that have taken a hit during the pandemic.
This fall, Pacific Northwest nonprofits including the Fred Hutchinson Cancer Research Center and Mary’s Place, an organization supporting women and families experiencing homelessness, have started directly accepting donations of cryptocurrency.
While it’s early days, the response so far has been muted: Fred Hutch reports two crypto gifts, and Mary’s Place is working out details with a donor who is offering a “sizable match” — in regular dollars — for crypto donations received during the upcoming GivingTuesday event. 501 Commons, the nonprofit that organizes GivingTuesday and GiveBIG events in Washington, said few nonprofits in the state are directly accepting crypto at this point.
“This is brand new. In the world of philanthropy, things take a while,” said Kelly O’Brien, vice president of philanthropy for Fred Hutch.
But change is coming as cryptocurrencies are becoming increasingly mainstream.
A new Pew Research Center survey found that 86% of Americans report having heard of crypto and 16% have traded or used the blockchain money.
The crypto-philanthropy sector has likewise been gaining steam. The Giving Block and Engiven, two of the most popular crypto-giving platforms, both launched in 2018 and a leading philanthropic news site published crypto how-to articles that year.
Three years later, The Giving Block is expecting to facilitate cryptocurrency donations directly to charities totaling between $100 million and $150 million, according to co-founder Pat Duffy. The platform also allows for contributions to donor advised funds (DAFs), accounts from which people make charitable donations. The largest DAF that Duffy’s startup works with is on track to receive $500 million worth of crypto in 2021.
Fidelity Charitable, a leading DAF provider, has received more than $274 million in cryptocurrency contributions so far this year, a sum that is nearly four-times larger than in 2017, according to The Associated Press.
There are “a lot more people and money in crypto, so as the ecosystem grows, the donation pool grows, the donor base grows,” Duffy said.
Appeal of crypto philanthropy
There’s a big perk to crypto giving. If a donor makes a direct gift of cryptocurrency, they avoid paying a capital gains tax that would be incurred if they first sold the currency and then made the donation. And they still get the tax deduction for charitable giving.
“We want to give our donors options that work for them,” said Linda Mitchell, spokesperson for Mary’s Place. “As services that accept and convert cryptocurrency become more common, it makes it easy and safe for us to provide this option for the community to support our work.”
A survey this past summer by Fidelity Charitable found that more than half of cryptocurrency holders didn’t know that they could donate the digital money, and many didn’t realize that it was legal to do so. Almost half of those who had donated said it was hard to find charities who accepted crypto.
David Beitel, chief technology officer for Seattle’s Zillow Group, is also a donor to Fred Hutch. He and his wife Joanna are matching donations, crypto and otherwise, made to the center through the end of the year. He’s a fan of the alternative currency.
“It is nice to see both charitable and commercial organizations and companies start to embrace crypto as currency,” Beitel said. “In addition to there being a growing supply and base of holdings by individuals, many have seen significant gains in their crypto holdings, so it is nice to be able to unlock that money for commerce and contributions.”
Reducing the risk
Despite growing acceptance of cryptocurrency, there are still concerns about the digital funds.
Critics call out the environmental impacts of the blockchains that mine the coins. Digiconomist calculates the energy and carbon footprints of blockchain networks, and currently puts Bitcoin’s power use on par with the nation of Thailand.
Crypto supporters, however, question the fairness of the comparisons and note that traditional financial systems have their own significant energy usage.
There are also worries about the risks associated with the digital funds. The head of the U.S. Securities and Exchange Commission this summer called the cryptocurrency market the “Wild West” and called for further regulations.
Duffy said that’s a misconception, and that his platform only deals in cryptocurrencies that are listed by Gemini, a regulated U.S. company that vets the different options and runs a crypto exchange.
Most of the charities reduce the risks associated with the volatility of the cryptocurrencies by immediately converting them to cash.
O’Brien said that’s true for the Fred Hutch, where regardless of whether the donation is crypto, stocks, property or other assets, it’s quickly turned into cash and distributed to support research.
“Our donors want to see their dollars going straight to work,” she said.
The financials of crypto philanthropy
Each year, philanthropic groups around the country ask donors to contribute on GivingTuesday, the Tuesday following Thanksgiving, which falls on Nov. 30 this year.
For the first time, GivingTuesday donors will be able to donate through the regular Washington state portal managed by 501 Commons and through The Giving Block’s Crypto Giving Tuesday site. Gifts made to either site will be passed to specific charities.
Nancy Long, executive director of 501 Commons, welcomes donations through both platforms. Charities are struggling financially she said, and a University of Washington study backs that up. Last year, nonprofits saw their funding shrink 30% while demand for many services increased.
Long does, however, question the impacts of the financial industry that’s building up around philanthropy, including DAFs and crypto giving. She’s concerned about the loss of tax dollars and the diversion of money into DAFs. Donors get a tax benefit from DAF contributions, even if the money sits in accounts indefinitely instead of being allocated to nonprofits. An estimated $160 billion is tied up in DAF assets, according to research.
But if the crypto donations “are going to charities and those charities quickly convert it into cash, that’s great,” said Long.
Research by Fidelity Charitable found that crypto holders were more likely to make charitable donations than other investors. Duffy, of The Giving Block, says that charities are starting to intentionally court the demographic. To him, it makes sense: new tools make it easy to make and track crypto donations, it confers tax benefits and its volatility both up and down seems to inspire giving.
“It’s almost like it was made in a lab for charitable giving,” said Duffy.