Site icon Integer, LLC

Will a Crypto Winter Freeze Digital Asset Giving?

If you’re a digital asset investor, the last few months have likely been bleak. Digital asset markets have cratered, which will likely throw cold water on the amount of crypto flowing to nonprofits. And while policymakers could help soften the blow by enacting sound crypto regulations, it appears that Washington is moving too slowly to head off a likely short-term decline in digital asset giving.

For the first time since the onset of the pandemic, U.S. stocks entered bear market territory in June, and digital asset prices were not spared. The price of bitcoin fell about 70 percent since peaking last November, and crypto startups and exchanges laid off thousands of workers in recent months. 

While big banks have largely been insulated from the latest “crypto winter,” individual investors have been hit hard. Less crypto wealth likely means less crypto giving to charity. And 2022 was supposed to be bigger than 2021. Last year, donors gave about $400 million worth of crypto to charities through two large intermediaries alone, but that was amid ballooning asset values. 

What was behind the sudden surge in crypto giving? Of course, the huge growth in the value of those assets, but also because investors began to understand crypto and other digital assets as a taxable asset class. As donors made plans to gift their taxable assets in exchange for a charitable deduction and to avoid capital gains taxes, some chose to donate crypto because of those tax incentives. 

Now, with inflation putting downward pressure on giving and digital asset values slumping, we could see slower growth in crypto donations relative to previous years. 

Many believe that a thoughtful regulatory environment for digital assets could help to stabilize and normalize this emerging asset class. Over time, stabilization could help asset values recover. But Washington’s pace toward a stronger regulatory framework suggests that the process could drag on for quite some time. 

One only has to travel a few steps from the White House to find an agency struggling to keep that pace. The Treasury Department is considering delaying when digital asset exchanges and brokers must begin collecting and reporting on transactions, which is designed to offer regulators more insight into the digital asset marketplace.

A near-term drop in crypto giving won’t necessarily mean that the digital asset well charities can draw from will completely dry up, however. This crypto winter may wash away sketchy companies, making the digital asset industry leaner but stronger. And if regulators can foster transparency and trust in the industry, digital assets – and digital asset donations – could rebound.

Exit mobile version