Crypto fundraising 101: Beginner's guide for nonprofits
Cryptocurrency, often abbreviated to “crypto,” has emerged as a new form of mainstream digital currency. And, as with anything new that affects philanthropy, many nonprofit leaders are still trying to figure out the best ways to approach and leverage it.
According to a 2021 Pew Research survey, 86% of Americans have heard about cryptocurrencies, and 16% say they have invested in, traded, or used crypto at some point. As crypto gains popularity and increasingly enters mainstream use, nonprofits that embrace crypto have an opportunity to tap into a new source of donations and begin building relationships with younger, more tech-savvy donors.
In this guide, we’ll cover the basics of crypto, our best practices for fundraising it, and what you’ll need to get started:
- Understanding cryptocurrency
- Why invest in crypto fundraising?
- Why donate crypto to nonprofits?
- Who donates crypto to nonprofits?
- Best practices for crypto fundraising for nonprofits
- What you’ll need to get started
Let’s start by answering a few fundamental questions:
What is cryptocurrency?
Cryptocurrencies, also called crypto, are digital or virtual forms of money. They are increasingly being used as a way to buy goods and services, as well as investment vehicles for long and short-term gains, similar to property or stocks.
With a market cap currently around $320 billion, Bitcoin (BTC) holds the largest market capitalization for crypto. But there are more than 16,000 different cryptocurrencies in circulation right now, including Ethereum, Tether, and Cardano.
Why is crypto unique?
One of the things that set crypto apart from other currencies or investments is its decentralization. No single entity is in charge of the currency, and there is no need to rely on banks or middlemen to hold or process crypto assets to complete a transaction. The available supply of a given cryptocurrency is not determined by external factors or monetary policy, but by the crypto’s software code.
Instead of relying on a centralized institution, cryptocurrencies use a software-based ledger of transactions, known as a “blockchain,” to record and confirm transactions. Most cryptocurrencies make transactions public, though the sender and receiver can be difficult to identify since they’re not attached to a name, but rather a wallet address and transaction ID (TXID).
Where does crypto come from?
The source of a particular cryptocurrency can vary widely. One way or another, though, the supply and generation of cryptocurrency depend on its underlying software code.
Typically, a new cryptocurrency will be launched by issuing an initial supply to interested participants and supporters. Then, over time, more will be generated and added into circulation, expanding the supply. Commonly, these new tokens will be provided as a reward to members of the computer network whose processors are supporting the crypto’s blockchain and verifying transactions, also called “mining.”
This creates an effective cycle of incentives. If the crypto rewards are considered valuable, then more computers will join the network in the hope of receiving some. As more computers join the crypto’s network, its blockchain becomes more reliable and trusted, driving up its value.
You can learn more about the details of how one of the most popular cryptocurrencies, Bitcoin, is mined in Investopedia’s guide.
What considerations and risks should nonprofits keep in mind?
There are some potential risks and challenges to consider when accepting crypto donations for your nonprofit.
- Market volatility: Crypto markets are volatile, and the value of crypto could go up or down at any given moment. That means if you accept crypto and don’t immediately convert it to cash, the gifts can be a lot bigger or smaller depending on when you sell them. Decide how to navigate this risk and make clear acceptance policies similar to those you’d create for accepting gifts of stock.
- Donor anonymity: Cryptocurrency donations can show up without a name attached to donor information. That makes it hard to substantiate a gift or give tax receipts. It’s harder to steward anonymous donors, so you’ll need to implement ways to capture as much donor info as you can.
- Unregulated space: Crypto regulation is highly likely to mature and evolve, especially in the wake of recent high-profile fraud cases. Best practices for handling crypto in legal, accounting, and tax fields should be monitored for developments.
- Effects on climate change: This is an important topic in conversations around the impact and future of cryptocurrency. It should similarly be monitored over time.
- Illegal activity: Crypto allows for anonymity, which has raised some red flags for potential illegal activity. It’s worth noting that there’s also the potential for illegal activity and fraud with other forms of giving as well.
The good news is the majority of these potential concerns can be avoided by using best practices for soliciting and accepting crypto donations, doing your due diligence to create a transparent, safe giving experience, and keeping clear records of crypto transactions.
Why invest in crypto fundraising?
Crypto represents a huge, rapidly growing fundraising opportunity for nonprofits to receive large donations. And as interest in crypto continues to grow and diversify, it opens philanthropic possibilities to an even wider and younger donor pool.
Consider these specific reasons why crypto fundraising is a smart area of growth for nonprofit organizations.
1. Accepting appreciated assets like crypto may fuel fundraising growth.
An analysis of one million nonprofit tax returns found that accepting non-cash gifts drives nonprofit fundraising growth regardless of nonprofit size and sector.
When looking at growth over a five-year period, nonprofits strictly accepting cash donations only grow by 11%. However, organizations accepting appreciated securities (like stock and real estate) grow by 66%.
Many cryptocurrencies like Bitcoin have dramatically increased in value over the years, meaning many crypto owners are holding onto these as appreciated assets. If nonprofits can secure these gifts, it will have a tremendous impact on their fundraising growth.
2. Crypto gifts can help you get bigger gifts from the same donors.
Gifts of appreciated assets like stock and crypto tend to be larger than the average cash donation (even from the same donors) because donors often pass the tax savings onto your nonprofit. And by encouraging donors to give from their wealth (like crypto assets) rather than their disposable income (cash), you can unlock new major gifts from under-the-radar sources.
3. Accepting crypto can open up a new pool of donors.
Crypto is a new source of wealth for many crypto owners. With rapid appreciation, there is a new pool of people who hold a lot of wealth in crypto, but not as much in cash.
This growing segment might not have been a priority for nonprofit development teams in the past, but it should be now. As more people buy crypto, more will likely see gains and want to give some of that wealth to charity in a tax-savvy way. If nonprofits can provide an easy way to give crypto, they can tap into this growing segment of wealthy, younger donors to build long-lasting relationships.
Why donate crypto to nonprofits?
Crypto is a new, particularly powerful way to reach new segments of donors and fuel your organization’s mission. But why would a donor prefer to give you crypto over cash?
Many crypto investors have seen significant appreciation in the values of their crypto assets in recent years. And as the regulatory landscape matures, many are encountering capital gains taxes for the first time — and realizing the benefits that they can receive by donating their crypto to charity instead of selling it.
Like property or stocks in the U.S., cryptocurrencies are subject to federal capital gains taxes, which are taxed when an individual sells the asset. The crypto tax rate for federal taxes is the same as the capital gains tax rate. For long-term capital gains (holding the coin for 365+ days), taxes range from 0-20% depending on income. For short-term capital gains (holding the coin for 365 days or less), capital gains are taxed at income tax rates of 10-37%
When donors give crypto directly to charity, they avoid capital gains taxes. They may also receive a federal tax deduction against their income tax for the full value of the gift.
This means it costs your donor less to make a gift of cryptocurrency than it would to sell their crypto and give the proceeds in cash. Many donors choose to pass on these savings to the nonprofit they’re giving to, translating into much larger gifts for your organization.
After donating, the donor can immediately buy more coins with cash if they want to stay invested in the cryptocurrency. This allows them to take on the present-day value and further save on the capital gains they’d pay in the future.
Who donates crypto to nonprofits?
More people are investing in crypto than ever before. In 2021, Pew Research found that 16% of American adults have owned crypto at some point. And the Motley Fool found that another 22% said they’d be likely to buy it at some point in the future.
As the adoption of crypto has risen, so have donations via crypto. Crypto donations going into Fidelity Charity donor-advised funds doubled from $13M in 2019 to $28M in 2020. And by November 2021, that number had skyrocketed more than 460% to $158 million. With such impressive growth, most people expect the trend to continue as crypto investors become more tax-savvy.
So, who uses and donates crypto? For the most part, it’s the philanthropic younger generations. The same Pew Research study found that:
- 43% of men between 18 and 29 say they’ve traded or invested in crypto at some point.
- 74% of crypto owners are men.
- 71% of crypto owners are white.
- Crypto owners have an average income of $111K.
Historically, younger donors have not been a large donor segment for most nonprofits. However, crypto has created a new source of wealth for this demographic, and crypto donations from them have soared.
By connecting with these donors now, you can educate them about the significant tax benefits of donating crypto to charity, secure new gifts, and begin stewarding lifelong philanthropic relationships.
Best practices for crypto fundraising for nonprofits
As an emerging field, best practices for cryptocurrency fundraising are evolving. However, following the tips below will set you on a path of success with soliciting and accepting crypto donations.
1. Include crypto donation options on your website.
There are three key places to include crypto on your website:
- Main donation page
- “Ways to Give” page
- A crypto-specific landing page
Many donation pages have dropdown options for donating via credit card, checking account, PayPal, and more. Allowing donors to select crypto on your donation page can streamline the process for them and encourage larger donations for your organization.
Another option is to add a line of text on your donation page letting donors know that if they would like to donate crypto they can do so, and link to a crypto-specific donation page. We’ll explain how to easily create one of these crypto pages below.
Your “Ways to Give” page likely lists all the different ways donors can contribute to your organization. Including crypto among these options may be as simple as adding a bullet to a list. For example, you could write:
Donate crypto, save on taxes, make a difference. If you own crypto, donating to [NONPROFIT] is a smarter, tax-savvy way to make a difference.
2. Ensure you're collecting the right donor information.
If you use an existing donation form, these fields will already exist. If you create a crypto-specific donation page, it’s important to capture donor information before providing the wallet info to make the gift.
Many crypto owners like the anonymity crypto allows, but they may not realize that means the gift will come to you anonymously. Letting them know that you are requesting donor information so you can properly thank them for their gift and provide tax documentation will lower anonymity rates.
Thank you for your crypto donation to [NONPROFIT]. Please use the form to make your gift. Your name, address, and phone number are optional, but they help us tremendously to understand who our donors are, allow us to express our gratitude, and ensure you receive the correct documents for tax purposes. We never share, sell, or trade donor information. Your donation does not trigger capital gains tax and may be tax-deductible.
3. Establish crypto donation liquidation policies.
Because crypto is a volatile asset, most nonprofits prefer to immediately sell crypto donations for cash. This is considered the least risky way to handle donations because it prevents discrepancies between the amount donated and the amount actually received.
To do this, you can sign up for a payment processor that will automatically convert crypto into cash for you. However, a more efficient option is to send your donors to Crypto for Charity, which will allow them to direct a gift to your organization and receive a tax receipt while you receive the funds in cash.
Holding crypto for a longer time horizon is often considered more suitable for larger nonprofit organizations that have a robust fundraising program or a strong interest in promoting cryptocurrency (and the financial wherewithal to invest in doing so, such as dedicated training for their staff).
Either way, it’s best practice to include information on your website about how crypto will be accepted by establishing a concrete acceptance and liquidation policy. Sample:
Cryptocurrency donations are processed by [COMPANY], and are immediately sold and transferred to [NONPROFIT NAME] in U.S. dollars. We do not maintain a reserve of cryptocurrency, therefore all crypto donations to [NONPROFIT NAME] are final.
For a closer look at crypto acceptance policies and what they should include, please refer to our in-depth guide: Accepting crypto donations - 6 updates to your gift acceptance policy.
4. Be aware of relevant tax laws and engage professional tax advisors to ensure compliance.
Many nonprofits inadvertently do not comply with IRS regulations around accepting crypto gifts. While a crypto gift can sometimes feel no different than a gift of publicly-traded stock, there are differences when it comes to tax reporting.
This is in some part because of how the IRS defines “charitable deduction property.” (Publicly-traded securities are an exception from that definition.) The way they define it, along with other factors, can trigger additional reporting responsibilities.
If a nonprofit sells donated property (like crypto) within three years of donation, it must file Form 8282 with the IRS within 125 days of sale. The form must be signed by an officer at your organization, and the penalty for not filing is $50 per form. This is generally true for all donations over $500.
If the gift is worth over $5,000, the nonprofit accepting it must also sign Form 8283 for the donor. While you don’t have to attest to the value of any donated item, you do have to acknowledge receipt of the donated property.
It’s possible (and likely) that IRS regulation around donating crypto could change, but a simple way to deal with this is to use a reputable external partner to accept, process, and immediately liquidate crypto donations. If using Crypto for Charity, the tax receipt comes from FreeWill Impact Fund, which also handles Forms 8282 and 8283, if necessary.
5. Educate your gift officers and marketing team about crypto donations.
It’s helpful for anyone speaking or marketing to donors on behalf of your organization to be familiar with all the ways to give. Gift officers and marketers should have a basic understanding of how crypto works and feel comfortable talking about it.
While they don’t need to know all the intricacies of how crypto is mined, they should know how interested donors can give crypto and the general tax benefits involved.
Marketing should also understand how to message crypto and target the right donors. For example, they should know to target segments of younger donors in major cities and those in tech professions.
6. Reach out to existing donors.
Not all of your donors will be interested in donating crypto, but many will be excited that you’re offering this new way to give. There are two approaches you can take when talking to your existing donors about crypto:
- Let all your donors know about this new way to give as a soft FYI.
- Identify people in your current audience who own crypto and directly solicit these gifts from them.
While you may not want to send an email to your full list with the subject line “Donate crypto today!”, it can be helpful to include a mention in an existing campaign explaining that crypto is another way to give. For example, you could add a postscript to an email or include a paragraph highlighting the new addition of crypto donations.
If you’re able to identify people in your current donor pool who already own crypto, then you could immediately implement targeted emails soliciting gifts of crypto.
If you can’t yet identify them, first try the soft FYIs. Then, in your database, tag the people who click on crypto links or respond with inquiries about crypto donations. Another option is to send a survey that includes questions about cryptocurrency and tag those respondents accordingly. Once you’ve identified a group that owns or likely owns crypto, you can then send targeted emails.
7. Develop an acquisition plan for new crypto donors.
If you’ve reached out to your current donors about crypto and have heard crickets, don’t despair. One of the exciting opportunities about crypto donations is the prospect of tapping into a new donor audience.
You likely already have a plan for acquiring new donors generally, but there are a few extra things to keep in mind when reaching out to crypto owners:
- They are online. Crypto owners are tech-savvy, so you’ll find them in online spaces. Email, social networks, and other virtual spaces (e.g. Reddit and Twitter) are where your outreach will be most effective.
- Don’t call them, and skip direct mail. This younger demographic is far less likely to pick up a phone to talk or answer one if you call. You can also skip sending them mail.
- Send texts. Reaching out or following up with donors via text message is an effective tactic for people who don’t go anywhere without their phones.
- Target based on interests and demographics. When targeting your outreach, there is a lot of solid demographic information for you to work with. Targeting by age group, location, and interest areas related to your mission will yield the best results.
What you'll need to get started with crypto fundraising
To begin your crypto fundraising program, you’ll need these essentials:
- A tool to accept and process crypto donations
- Educational materials for your team
- Your finance, fundraising, and marketing teams will all need to understand their roles in the crypto fundraising process and be able to comfortably speak about crypto with donors.
- Marketing and acquisition plans
- Refer back to the demographic information discussed above. Build a plan to identify and target potential crypto donors similarly to how you might conduct outreach to other major or planned gift donors.
- Policies and guidelines
- Crypto acceptance policies that detail how gifts will be processed and when they’ll be liquidated are a must. Explore our full acceptance policy guide for more information and templates.
- Communication templates
- Hit the ground running by creating templates for promoting crypto fundraising. You’ll need templates and design collateral for social media posts, text messages, and emails that briefly explain the value of donating crypto and encourage readers to learn more.
- It’s also a good idea to create bullet points and postscripts that can be easily added to messages sent to broader segments of your donor base.
Cryptocurrency donations are an exciting and growing field for nonprofits. Although it can be easy to get caught up in the technical jargon if this is a new form of giving for your nonprofit, the bottom line is that crypto represents a powerful way for new audience segments to give large, tax-savvy, non-cash gifts.
Getting up to speed on crypto fundraising now will help your organization stay ahead of the curve and build strong connections with new groups of donors.
To learn more about crypto fundraising and other valuable forms of non-cash giving, keep exploring with these additional resources from the FreeWill team: