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Published in Nonprofits
Report: Cryptocurrency donations among top nonprofit trends to watch in 2022 Source: Google finance

Report: Cryptocurrency donations among top nonprofit trends to watch in 2022

BY Sunday, January 30, 2022 06:54pm

The rapidly growing cryptocurrency phenomenon is emerging as a key fundraising tool for nonprofits that can sustain giving in new ways while also bringing in a younger demographic to philanthropy.

Cryptocurrency — a borderless, digital form of money that uses a decentralized system to record transactions and is popular on platforms such as Bitcoin, Ether and Dogecoin — first appeared in the nonprofit sector five years ago with the earliest major digital contribution. In 2017, the nonprofit Pineapple Fund, a project led by an anonymous individual, donated 5,104 bitcoins to 60 charities. The gift was worth more than $55 million at the time.

Since then, a market for digital donations has slowly grown, including with new third-party intermediaries that help nonprofits receive cryptocurrency gifts.

Although very few West Michigan nonprofits appear to be actively pursuing crypto donations, researchers at Grand Valley State University’s Dorothy A. Johnson for Philanthropy say the emerging form of giving is a key trend to watch this year.

“The sky’s the limit,” said Johnson Center Operations Director Julie Couturier, particularly based on the opportunity for new, younger donors who can help diversify revenue streams.

“The people who are building wealth in cryptocurrency are commonly young, male, and tech-savvy. They’re just getting into philanthropy because they all of a sudden have the funds to do so, and they haven’t established their giving patterns yet because this is still pretty new,” Couturier said via email. “But as more and more people enter the crypto market and more organizations and advisors become adept at navigating crypto as a vehicle for giving, the sky’s the limit.”

Meanwhile, cryptocurrency donations effectively function like stocks, creating a favorable tax environment that would avoid capital gains taxes, for example. For tax purposes, they are treated as appreciated assets such as securities and real estate.

“That’s a favorable context for giving,” Couturier said, adding that crypto donations also can make for easier international transactions completed in minutes. “If and when that changes, of course, it could change the trajectory of this trend.”

The trend, at least for now, is heading upward. Crypto contributions to donor-advised funds at Fidelity Charitable Trust more than doubled from $13 million in 2019 to $28 million in 2020, according to the Johnson Center.

On the donor side, crypto-based donor advised funds can keep individuals anonymous even though transactions are recorded in the blockchain and viewable by anyone.

“This interesting combination is appealing to some donors, and also helps address the lack-of-transparency criticism that exists for traditional DAFs,” according to a recent Johnson Center report on emerging giving trends.

However, researchers say that potential for growth comes with some risk. For one, cryptocurrency values can shift quickly and even more so than the stock market, Couturier noted. Cryptocurrency values have been steadily declining since November. In recent weeks, Bitcoin dropped in value to below $33,000 after a record-setting high of $69,000 in November, according to media reports.

“There’s also just thousands of different cryptocurrencies,” she added. “You’re not only dealing in U.S. dollars, you’re dealing with multiple different currencies and there are more being created all the time. Keeping track of and understanding the variability here is a big job. It’s complex; nonprofits may not have people on staff who are familiar with how it works and how to use it.”

As with other forms of giving, donor transparency concerns also surface and “organizations may or may not actually know who the money is coming from,” Couturier said.

Testing the waters

That’s where third-party intermediaries like Washington, D.C.-based The Giving Block can step in and help nonprofits by converting cryptocurrency donations to cash. Formed in 2018, the membership-based organization prepares nonprofits for accepting crypto donations and also connects donors to crypto-ready organizations. The Giving Block reported that the value of total cryptocurrency donations now exceeds $300 million annually.

Crain’s Detroit Business reported in November that, at the time, 13 Michigan-based nonprofits had joined The Giving Block.

That includes Grand Rapids-based Kids’ Food Basket, which paid the $2,500 Giving Block membership fee at the end of November around Giving Tuesday, enabling it to receive a variety of different cryptocurrencies. So far, the organization has received one cryptocurrency-based donation.

“As an organization, we are always seeking opportunities to be innovative and make it easy to engage with our mission and to support our mission on an ongoing basis,” said Chief Operating Officer Afton DeVos, adding that reaching new demographics was a motivating factor in joining The Giving Block. “We feel it’s a great opportunity to start something new. We don’t know exactly how this is going to work or if it’s financially beneficial in the long run, but … it was an opportunity to test new waters.”

DeVos added that, after weighing the costs and benefits, “this felt like a fairly low risk.” One measure of success will be whether the amount of ccrypto donations meet or exceed the $2,500 membership fee with The Giving Block, she said.

Keith Hopkins, founder of Ada-based Hopkins Fundraising Consulting LLC, believes West Michigan is still a few years away from more fully embracing crypto giving because of the “little bit conservative” nature of the region’s philanthropic community.

“We probably have to watch what happens in the bigger cities with the bigger nonprofits,” he said. “I assume you’re going to see some potential crypto gifts come from people who are, you know, maybe a little shady. But, hey, that happens with real money.”

While still a relatively rare form of giving in West Michigan, cryptocurrency should start to be included in nonprofits’ donation or investment policies, Couturier said: “Otherwise, nonprofits should be keeping in mind the risks and advantages.”

MiBiz Editorial Intern Hannah Brock contributed to this story.

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