Follow along with Justin as he becomes crypto-literate. This blog is part 4 of 6 in this crypto education series.
My mom and dad started a nonprofit––which I am a part of now––that provides practical training to church workers in Mexico. Our nonprofit accepts cash donations and, after 30+ years of fundraising and donor relations, we feel that we have a pretty good understanding of what motivates our donors to give.
To us, crypto feels like a whole new ballgame, where we don't know our potential crypto donors or what might motivate them to give.
Like us, I'm sure many of those who use Engiven's platform feel unqualified to engage potential crypto donors.
I've done some research on crypto giving, and I'll dedicate this blog to presenting it in the simplest terms possible.
What a crypto donor looks like
Forbes published an article last year that describes a shift that has been taking place in philanthropy over the past 20 years. In summary, "the dollars donated in America are moving from the middle class to the wealthy, from income to assets, and from boomers to millennials."
The dollars donated in America are moving from the middle class to the wealthy, from income to assets, and from boomers to millennials.
This means a couple of things:
- More dollars are being given, but less people are doing the giving
- Giving of property is increasing, while giving of cash decreasing
- The average donor is younger (and wealthier) than before
In August 2021, Engiven co-founder and COO Matt Hayes did a webinar with Bloomerang. It's an hour long, and really helpful in understanding how crypto works and what it means for nonprofits. In it, he refers to a 2021 study that Gemini produced, revealing the following data:
- 14% of the adult US population owns crypto
- 74% are men
- The average crypto owner is a 38-year-old male making approximately $111,000 USD a year
To those of us who work at nonprofits, this means that today's (and tomorrow's) average donor is much different than the donors of the last 20+ years. Because of that, we would be wise to adjust our donor relations strategies accordingly, particularly by making it easier for donors to give property (whether that's in the form of stocks, bonds, land or crypto).
Why people donate crypto
In the US, cryptocurrencies are considered a non-cash contribution. That puts them in the same "tax" category––when donated––as a car or a house. In many ways this makes cryptocurrencies a most donatable asset. But, no matter what they're donating––be it cash, cars or crypto––people who practice philanthropic giving do so for three main reasons:
- Belief in the cause: People want to have a sense of purpose and meaning in their lives. If a potential donor believes that your nonprofit does something for the betterment of the world, then they're likely to give.
- Tax Benefits: Simply put, people are highly motivated to give because of the tax benefits. We'd like to believe that giving would remain constant even if the tax benefits didn’t exist, but hopefully we never have to test that hope. People will go to great lengths to avoid paying taxes, and by donating to an organization like yours, they can make a positive impact while doing it.
- Trust: If donors believed their donations would end up lining your pockets rather than accomplishing something good, they wouldn't give to you. But, the more they trust your organization to make an impact with every dollar you receive, the more willing they will be to give.
Let's take a look now at how each of these 3 motivating factors pertain specifically to donations of cryptocurrency.
- Belief in your cause: Is your cause worth believing in? If you answered yes, then it is inevitably worth contributing to as well! People will be generous towards the causes and organizations they believe in. If one of the people who believes in your organization owns cryptocurrency, and they know that you can receive cryptocurrency donations, they will donate it. Why? First, because they are able to give toward something they believe in: your cause and organization. And second, because they'll be able to give in a manner that they believe in: by using cryptocurrency.
You may wonder how many people in your network or on your donor list even own cryptocurrencies. Even if that number is small right now, our world is undeniably moving towards trusting and valuing crypto. By being on the front end of adoption, you will be the first to reap the benefits and rewards of its new use in philanthropy.
- Tax Benefits: For your donors, the benefits of donating crypto far exceed the benefits of donating cash.
Here is a hypothetical example to help paint the picture, so don’t take this as financial or tax advice––the specific numbers will be different for you or your donor.
Say Dan has $250,000 of Bitcoin and he wants to donate it. He has two options, he can either sell his Bitcoin for cash, and donate the cash to your organization, or he can donate the Bitcoin directly to you. If he sells his Bitcoin, he will need to pay capital gains taxes on the sale, which for most people will be between 15-30% depending on how long the individual owned the asset.
If Dan bought his Bitcoin for $10,000 and sold it for $250,000 (and held his Bitcoin for over a year), he would be paying roughly $35,000 in taxes. Likely, instead of donating $250,000 to your organization, he'll end up donating $215,000 ($250,000 - $35,000), after tax. So, you'd miss out on $35,000.
But, if your organization accepts cryptocurrency donations, Dan can donate his $250,000 in Bitcoin directly to you, and avoid capital gains taxes! He will also not need to claim his Bitcoin gains as income, most likely keeping him in a lower tax bracket. It's a win-win scenario for Dan and your organization.
Donors of crypto need to know that their donation will be used for good, and not end up lining your pockets.
- Trust: The average donation processed by Engiven is $15,000 dollars, and the largest donation to date was $10 million dollars. These donors often have financial advisors and wealth managers overseeing their financial portfolios who, together with the donor, will evaluate your organization in an attempt to answer this question: Can we trust this organization to use our gift to advance the cause? Having clear financial reporting, specific fundraising goals that they can direct the funds towards (like the purchase of land or a building), and being open and accessible in your interactions with them will really help develop and reinforce their trust. Donors of crypto need to know that their donation will be used for good, and not end up lining your pockets.
The average American philanthropist has been changing over the last 20 years in several key ways: They're wealthy, they're giving assets (rather than income), and they're millennials. As such, they're native users of technology, and increasingly adding crypto to their financial portfolios. Cryptocurrency is currently viewed (by tax authorities) as a non-cash asset so, when crypto is donated, it creates significant tax benefits for the donor. It's important for nonprofits to adapt to these changes in philanthropic giving by providing donors a way to donate crypto to their organization, and by fostering trust with these potential crypto donors. Trust is hard to earn and easy to lose, but can be promoted by nonprofits through clear financial reporting, specific fundraising goals, and openness and accessibility to their donors (and their donors' financial advisors).