News for Professional Advisors

Crypto is Back

Cryptocurrency markets are buzzing once again and the recent surge in value is prompting more individuals to consider donating Bitcoin and other cryptocurrencies to charitable causes.

The approval of a Bitcoin exchange-traded fund (ETF) earlier this year has catalyzed recent market excitement and helped cause a massive resurgence in the price of Bitcoin. This development has sparked institutional interest, with major financial firms stepping into the crypto arena, offering custody services and driving significant capital inflows into these ETFs.

Bitcoin’s halving event in April has also contributed to the bullish sentiment. Historically, such events have been followed by significant price increases within a year, leading many to believe there’s still room for the price to climb.

Given the current landscape, a gift of crypto could be particularly appealing for your clients. Cryptocurrencies such as Bitcoin offer high liquidity, easy sellability, and minimal transaction costs, making them ideal for charitable giving.

We suggest leveraging a donor advised fund (DAF) for donations of cryptocurrency. This approach allows your client to make an outright gift, receive an FMV deduction, and divest the volatility risk. The DAF will immediately liquidate the assets, allowing your clients to maximize their gift, especially during favorable market conditions.

Here are a few items to keep in mind:

Crypto is classified as property by the IRS, necessitating completion of Form 8283 and a qualified appraisal with a donation.

Crypto ETFs are publicly traded, so while Form 8283 will still be required, they are exempt from the requirement for a qualified appraisal.

In a volatile 24-hour market, effective communication and timing are crucial for the donation. Avoid initiating after-hours transfers, as this can complicate a quick liquidation turnaround.

Be vigilant after a year for clients holding ETFs, as a donation could help avoid tax on any long-term gain.

Want to learn more? The Community Foundation is here to help.

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