Can Cryptocurrency Still “Do Good”?

May 31, 2024

As most investors know, cryptocurrencies have historically been a volatile investment. In the fall of 2022, bitcoin lost more than 75% of its value. Although it has since recovered, daily price swings of 5% to 10% are common, and another crash is always possible.

But on April 8, 2024, Bitcoin hit a record high of over $72,000, eclipsing its euphoric 2021 run. Just 11 days later, the blockchain giant also completed its fourth halving,1 quickly recovering from a temporary dip of the price.

The US financial regulator’s January 2024 approval of cryptocurrency Exchange Traded Funds helped Bitcoin reach its latest peak.

Charitable investors may be wondering: Can I use this momentum to make a difference? My answer: Absolutely.

• First things first: Selling cryptocurrency after it has appreciated is a taxable event.
  
  
  This might seem like a given, but a 2021 Fidelity Charity Study found that 38% of cryptocurrency investors were unaware that, similar to the sale of long-term appreciated securities, the sale of digital assets is a taxable event. The survey also showed that only half of investors knew that the asset could be donated to charity.
  

• Savvy crypto donors know: This asset has the potential to do even more good for philanthropy than cash, with smart tax gains for you AND the charity.

  Consider this: 63% of contributions to Fidelity Charitable in 2023 were in the form of nonmonetary goods, including $49 million in cryptocurrency. Why do so many donors tend to donate cryptocurrencies?

  1. The tax deduction is generally equal to the fair market value of the donated Bitcoin (as determined by a qualified appraisal).
  2. Instead of paying capital gains taxes on the appreciation, the 501(c)(3) charity receives the full value of your contribution. These tax savings can then become a direct source of new funding for charitable causes.
  3. You might target the asset with the highest percentage gain in your portfolio, typically the asset that would generate the most taxes if sold: Bitcoin is up more than 130% over the same period last year, compared to the S&P 500 which increased by just 21% in the same time frame.
  4. While many nonprofits accept cryptocurrencies directly, contributing the currency to a donor-assisted fund may be easier.
  5. With a single contribution you can support multiple charities immediately or over time and at the same time be eligible to immediately receive or claim a tax deduction. This strategy may be more administratively efficient than directly sending small amounts of cryptocurrency to charities and then having to collect individual tax receipts from each organization. Fidelity Charitable accepts Bitcoin, Ethereum, Litecoin, and most recently, Solana.
     

• You’re not alone: ​​Donors are contributing a record amount of cryptocurrency to charity.
  
  
  In the first four months of 2024 alone, cryptocurrency contributions to Fidelity Charitable reached more than $300 million—almost the same amount contributed throughout 2021when Bitcoin last crossed the $60,000 valuation threshold.
  

If donors continue this trend, cryptocurrency charitable contributions could see explosive growth by the end of the year. And if our past data… shows 95% of cryptocurrency holders surveyed made charitable contributions in 2021: It teaches us something, is that, while volatile, this asset is a popular way to maximize philanthropy well beyond a cash donation.

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