As the largest cryptocurrencies are flirting with record high values, they are becoming more and more significant sources of income for charities. However, the number of charities that accept virtual currencies, notorious for their volatility, remains limited.
Bitcoin, the world’s largest cryptocurrency, hit nearly $ 69,000 for the first time in its history last week, bouncing back after plunging below $ 30,000 in the summer. Ethereum, the second-largest cryptocurrency, has also hit record highs.
According to CoinGecko prices, both cryptocurrencies fell from record levels after helping to boost the total cryptocurrency market capitalization to over $ 3 trillion. As of Monday morning, CoinMarketCap, another popular metric, had a market cap of $ 2.8 trillion.
So far this year, Fidelity Charitable, the country’s largest donor, has received over $ 274 million in cryptocurrency contributions, nearly four times the previous record of $ 69 million in 2017, according to a company spokesman. Cryptocurrency donation platform Engiven said last month that it has accepted what it calls the largest single Bitcoin donation to date: a $ 10 million bitcoin gift from an undisclosed religious organization.
Many large charities and international relief agencies like the American Red Cross and Save the Children have set up mechanisms to accept cryptocurrencies or use platforms that help them convert them into cash right away.
But smaller organizations, which make up the vast majority of registered nonprofits in the country, are trying to figure out how to accept these currencies, and if they even make sense to do so, said Rick Cohen, director of communications and operations. at the National Council for Nonprofit Organizations.
“For a lot of organizations, it’s a little scary because they’re used to not investing,” Cohen said, It’s not that easy and free,” he said. “And they need to find out if there is any demand at all from their current donors so they can do it.”
Action Against Hunger, a global humanitarian organization, began accepting cryptocurrency donations last year after a group of donors approached them to collect assets, said Aron Flasher, the organization’s corporate partnership manager. Since then, he said, they have raised over $ 1 million in virtual currencies.
“We feel like we have communicated our concerns to a very diverse group of supporters that we would otherwise not be able to reach,” said Flasher. “And so far all our forecasts show that it will only grow.”
A Pew Research Center poll released last week found that 16% of Americans have invested, traded, or otherwise used cryptocurrencies in one way or another. Thanks to the interest of millennials, digital currencies have become more popular since the inception of Bitcoin in 2009, but skeptics say their use is just a passing fad.
Gary Gensler, chairman of the Securities and Exchange Commission, said in September that investors lack protection in the cryptocurrency market, which he described as “full of fraud, deception, and abuse,” comparing it to the “wild west.” Regulators warn that digital assets pose a higher risk of money laundering, terrorist financing, and other criminal acts. And several countries have pledged to ban the transaction.
Cryptocurrencies are an attractive item to donate because they allow donors to avoid capital gains taxes. Donors will be subject to this tax if they convert virtual currency into cash before donating, meaning less money can flow to the charity of their choice. Another bonus is the income tax deduction.
According to the small number of cryptocurrency owners who donate part of their wealth to charity, tax savings are the driving force behind their crypto gifts, the Fidelity Charitable reported in October. Many of these investors also report having difficulty finding organizations that accept virtual currencies, which may be unstable for charities.
When Ethereum co-founder Vitalik Buterin donated $1 billion worth of Shiba-Inu coins – known as “memes” or joke coins – to a COVID-19 relief fund in India in May, the transfer disclosure reduced the token price by 50%. Two months later, Sandeep Nailwal, founder of the aid group, said that only $20 million had been spent due to difficulties in converting cryptocurrencies and complying with Indian government regulations on assets. (The value of the Shiba Inu has increased in price since then).
The instability in the crypto world has resulted in several fundraising platforms and donor-recommended fund sponsors such as Fidelity Charitable turning them into cash right away. Pat Duffy, the co-founder of the popular cryptocurrency donation platform The Giving Block, says it’s rare because some nonprofits use the platform to store assets.
Fidelity places cryptocurrency money into donor-recommended funds that allow donors to receive an upfront tax deduction before the money is distributed to functioning charities.
“You can have a situation where someone is donating cryptocurrency and if we don’t sell it immediately, it could lose 20% of its value in one day,” said Tony Oommen, vice president and charity planning advisor at Fidelity Charitable, “Or it could be the other way around,” added Oommen. “But we’re not trying to speculate on that.”
Price fluctuations are not the only concern. The environmental organization Greenpeace stopped accepting Bitcoin earlier this year citing environmental concerns related to the extraction of the digital currency.
Despite this recall, James Lawrence, CEO of donation platform Engiven, believes that most nonprofits will accept crypto donations within the next five years, According to most estimates, there are less than a few thousand who will accept crypto,” he said. “There’s a lot of room for growth.”
Pete Howson, a superior teacher at the University of Northumbria in the UK who studies cryptocurrencies, said the use of virtual currencies in some cases could enhance what he called “supervisory philanthropy.” For example, GiveTrack, a website dedicated to funding cryptocurrency groups, uses blockchain technology as well as charitable materials to send reports to donors on how their crypto contributions have been spent.
Connie Galipi, founder and CEO of the BitGive Foundation, which runs GiveTrack, said the report simplifies transactions recorded on the blockchain and shows donors what they are buying with their contributions. He said the report also shows donors how charities spend the money they convert into local currency.
Gallipi said the goal of the software was to increase transparency in the nonprofit sector, adding that any criticism of follow-up was unfounded because charities could refuse to accept limited donations this is transparency at its best when you have no control over the data being presented,” he said. “Regardless of your actions back this data.