There are risks for both the donor and the receiver, starting with the yo-yoing values. A $5 million gift today may be worth $3 million or $7 million next week.
The University of Pennsylvania recently announced a $5 million gift to Wharton, its business school. The donation was not one of its largest, but the university announced the gift with the type of fanfare it usually lavishes on gifts many times its size.
What gives?
The gift, from an anonymous donor, was in Bitcoin. The announcement, therefore, was a trial balloon — a signal that cryptocurrencies are now as acceptable for donations as stocks, bonds, real estate and other investments.
“A few years back, there had been a lot of discussion among nonprofits about cryptocurrency and whether we should accept it,” John Zeller, senior vice president for development and alumni relations at Penn, said in an interview. “The donor’s goal was to make a gift of that magnitude, a promotable gift, to say, ‘If you’re interested, we’re in the crypto world, and we can accept it.’”
But, Mr. Zeller said, the floodgates did not open. “We haven’t seen a rush of gifts in cryptocurrency,” he said.
Cryptocurrency, as an asset to donate to charity, is as complicated as the asset itself and the reasons for owning it. Bitcoin, Ether and other cryptocurrencies have many of the qualities of publicly traded securities: For the recipient, the value is easy to know, and for the donor, any gains that would have been subject to tax are erased when the asset goes to charity.
But cryptocurrencies have been a lot more volatile than almost any single stock. That increases the risk for the recipient, and it may make it more difficult for the donor to commit to a fixed amount. (Cryptocurrencies that are worth $5 million today may be worth $3 million or $7 million just next week.)
It is also true that a donation in cryptocurrency can be more convenient for an international aid organization. It simplifies the task of sending the money to a particular country, and the underlying blockchain technology can enable the organization to track exactly how the cryptocurrency is being used.
Penn had contracted with NYDIG, a platform that manages digital currency transactions, only at the start of this year, Mr. Zeller said. Shortly after, it received $25,000 in Ether from a young alumna who wanted the gift to go to the general scholarship fund.
“Lo and behold, we had just put this in place,” Mr. Zeller said.
The $5 million Bitcoin gift in May was more complex. The donor wanted it to be large enough to attract attention that would help the university get similar donations. At the same time, the donor wanted the money to fund research and programs at the Stevens Center for Innovation in Finance at the Wharton School.
The donor wanted the university to hold at least some of the donation in Bitcoin, but the issue of what would happen if it plummeted in value had to be resolved.
“Our policy had been to traditionally sell everything immediately, even if it had been $5 million in stock,” Mr. Zeller said. “So the donor and the university agreed that he would backstop it. He gave us $5 million in Bitcoin. We liquidated some; we’re holding some. But he said, ‘I guarantee that at the end of the day you’ll get $5 million whether it’s in Bitcoin or something else.’”
Of course, the value of Bitcoin or another cryptocurrency could just as easily skyrocket. That is why some owners of cryptocurrency would rather not donate it to a charity.
“A lot of crypto investors are bullish on it and are holding on to it to go to the moon,” said Larry Cheng, managing partner at Volition Capital, which invests in early-stage financial technology companies.
There are at least two reasons that cryptocurrency gifts could be a smart for both sides.
Cryptocurrencies are like any appreciated asset, including securities and real estate, in terms of taxes. No taxes are owed on the capital gains of assets donated to charity, so the nonprofit effectively receives more money.
A second reason is that the blockchain technology has proved effective in transferring, tracking and accounting for money sent internationally.
Take UNICEF, the United Nations program that helps impoverished children. “You can have the local office in the region convert the crypto into the local currency, and now you don’t have to pay the wire fees on the transfers,” said Tom Pageler, chief executive of Prime Trust, a Nevada trust company that focuses on digital assets that has worked with donors to UNICEF. “You can get money there immediately.”
“Also,” he added, “if I’m the Red Cross and moving crypto around the world, it’s all on blockchain, so I can see when it’s cashed and used. There’s the ease of it.”
A few years ago, a UNICEF fund-raising drive asked video gamers to create, or “mine,” cryptocurrency between gaming sessions.
Greenpeace stopped accepting cryptocurrency because of the environmental impact of generating it. But Mr. Pageler pointed to strides being made in using renewable energy to mine digital currency.
Other nonprofit organizations aren’t accepting cryptocurrency directly because they lack the infrastructure to receive it and store it securely.
“It’s different, and it’s not for the uninitiated,” said Kim Komando, author of “Cryptocurrency 101: The Beginner’s Guide to Buying, Selling and Spending Digital Currency the Safe Way.”
“It’s too much the Wild West right now for somebody to think, if they don’t know a lot about crypto, that they can hop online, buy some crypto and alleviate some capital gains taxes,” Ms. Komando continued, “because they might get scammed along the way.”
Still, she said, there are plenty of resources, like the Giving Block, that allow people to donate cryptocurrency and nonprofits to receive it safely and relatively easily.
Donor-advised funds, which allow people to make donations today for tax purposes and recommend charitable grants at a later date, have seen an increase in cryptocurrency donations. Among them are Fidelity Charitable, the largest donor-advised fund in the United States, with over $35 billion in assets, and its main competitor, Schwab Charitable, with over $17 billion.
So far this year, Fidelity Charitable has received $150 million in cryptocurrency, up from $28 million for all of 2020 and $13 million in 2019, said a spokesman, Stephen Austin. “The appreciated value of cryptocurrency is prompting more donors to use this asset to fund their charitable giving as well as increasing the average size of each contribution,” he said.
What neither Fidelity Charitable nor Schwab Charitable does is manage the cryptocurrency, meaning that they sell it and put marketable securities or cash into the client’s donor-advised fund.
“Generally, charities are conservative with how they want to manage assets,” said Todd Eckler, executive director of Fiduciary Trust Charitable, a donor-advised fund that has about $250 million in assets and does not have cryptocurrency abilities. “You could see the value evaporate pretty quickly. It’s highly volatile, and it’s not a good fit for many charitable institutions.”
For Mr. Zeller, who helped broker the Bitcoin donation at Penn, the ability to accept cryptocurrency is what matters most.
“It’s very nice to have the capacity to do it when a donor says, ‘I have some Bitcoin,’” he said. “We can accept it now without it grinding the university to a halt.”
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