Higher Prices Mean More Giving. More Giving Means More Adoption
Bitcoin has left every other asset class in the dust. And that outperformance didn’t just take place this year — it’s outperformed every asset over the last five-year and 10-year periods. As we approach a new all time high, 99 percent of bitcoin owners are in profit. Given how rapidly bitcoin has appreciated, it shouldn’t be surprising to hear that price rallies lead to significant bitcoin donations.
The last time Bitcoin hit $20,000, we saw over $100 million worth of bitcoin donated to nonprofits in one month. A huge chunk of that was from the Pineapple Fund which donated about $56,000,000 to 60 different nonprofits. The Pineapple Fund supported a wide range of causes like Pencils of Promise, the Mona Foundation and The Water Project.
But Why Do People Donate Bitcoin?
Donating appreciated bitcoin is often the most tax-efficient way to support your favorite cause, whether its childhood hunger or education. The tax benefits are very similar to donating appreciated stock. People like Jack Dorsey don’t donate $1 billion worth of Square stock for the sake of convenience. He and many others donate their stock for the major tax benefits.
Ask your financial advisor, it’s a common tax strategy. They’ll tell you to donate your most highly-appreciated asset first. Since the IRS classifies bitcoin as property, that means no capital-gains tax and a fair market value deduction on your tax return, which means you could be saving over 30 percent, so it’s a great way to offset some (or all) of your capital-gains taxes in a bull market. I’d be willing to bet Dorsey donates in bitcoin next time.
What’s even better? If you already donate using a credit card or other traditional method, you’re leaving money on the table. Donate a certain amount in bitcoin and repurchase that exact amount. Since there’s no “wash rule” for bitcoin, it’s actually even more tax efficient than a stock donation. You’ll get a 20 percent to 30 percent higher deduction on your donation since it will be in pre-tax dollars. Although I use the U.S. as an example, this is also the case in many other countries — but make sure to consult with your tax advisor.
Creating A Virtuous Cycle
Beyond the tax benefit, bitcoin giving creates a virtuous cycle. More bitcoin gifts result in more nonprofit adoption, which results in more mainstream awareness, which results in higher prices. One impact of the Pineapple Fund that isn’t often discussed is the impact that the donations had on mainstream adoption. Imagine hearing about Bitcoin for the first time because your favorite charity got a $1 million bitcoin gift. That’s a very different way of introducing people to Bitcoin.
The Pineapple Fund created positive press in almost every mainstream media outlet. It has been the largest “bitcoin for good” story to date. I wouldn’t be surprised to see similar stories pop up once we hit a new all-time high. How long until a major cryptocurrency company CEO decides to make a multi-million-dollar bitcoin donation? It probably won’t be long until we see something similar to the Pineapple Fund.
The bottom line: Would you rather donate to your favorite charity or the IRS? Donate bitcoin to one or more of the 120-plus bitcoin-friendly nonprofits for this Bitcoin Black Friday and Bitcoin Tuesday here. 2020 has been great for Bitcoin awareness. Let’s make sure we keep the virtuous cycle of bitcoin giving going.
This is a guest post by Alex Wilson. Opinions expressed are entirely his own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.