This is our final Crypto for Advisors newsletter of 2024. We are taking a break next week to relax before what we believe will be an action-packed 2025 in the crypto space.
This year, we’ve published 51 newsletters dedicated to educating advisors about digital assets. Our readership has nearly doubled from 24K to 44K active subscribers. We thank the many advisors who have signed up and engaged with us every week. As always, we enjoy hearing your feedback and suggested newsletter topics, so please reply to this email or connect with me on LinkedIn to share your thoughts and ideas.
In today’s issue, Phil Geiger from bitcoin financial services provider Unchained explains what bitcoin donor-advised funds are and how they work.
Then, Eric Tomaszewski from Verde Capital Management answers questions about funds and potential tax implications in Ask an Expert.
Happy reading.
– Sarah Morton
The Rise of Donor-Advised Funds: Tax Benefits and the Power of Bitcoin DAFs
In recent years, donor-advised funds (DAFs) have surged in popularity as a philanthropic vehicle, offering a flexible way for individuals to manage their charitable giving. Adding to the appeal is the emergence of bitcoin DAFs, which combine the flexibility and tax benefits of traditional DAFs with the unique advantages of on-chain assets.
The Rise of Donor-Advised Funds
A DAF is a charitable giving account that allows donors to contribute assets to a fund, receive an immediate tax deduction, and then recommend grants to charities over time. DAFs have grown exponentially in recent years. As of 2024, there are around 2 million DAF accounts in the United States, holding a combined value of over $250 billion.
DAFs offer convenience and control. Donors can contribute at any time, make investment decisions to grow the fund’s assets and increase the amount for charity, and then direct grants to qualified charities when ready. This allows individuals to align their giving with their financial situation and support a variety of causes over the long term, but they don’t necessarily have to distribute their donations immediately.
Tax Benefits of Donor-Advised Funds
The tax advantages of DAFs are one of the primary reasons for their popularity. When donors contribute to a DAF, they can take an immediate charitable deduction for the full value of their contribution, subject to IRS limits. This applies whether the donor contributes cash, bitcoin, securities, or other assets. For example, in the case of appreciated cryptocurrencies, a donor can avoid paying capital gains taxes, which can be significant on investments that have appreciated over time.
The deduction is especially valuable for individuals looking to offset a large taxable event, such as the sale of a business or the exercise of stock options. Donors who contribute appreciated assets directly to a DAF receive the full fair-market value as a deduction, while the DAF can sell the assets without incurring capital gains taxes. This strategy allows donors to make larger charitable contributions without incurring tax penalties.
Additionally, DAFs offer flexibility in terms of timing. While donors can take an immediate deduction when they contribute assets, they can delay the actual distribution of funds to charities. This allows donors to manage their giving strategically, decide when and where their funds are allocated, and optimize their charitable impact.
The Emergence of Bitcoin DAFs
Bitcoin DAFs combine the flexibility and tax benefits of traditional DAFs with the unique advantages of on-chain bitcoin. Donors who own bitcoin (or other cryptocurrencies) can contribute them directly to a bitcoin DAF, receiving the same tax benefits as donating appreciated securities.
While traditional DAFs often accept cryptocurrency, they typically sell the digital asset for dollars, and then can give donors exposure to bitcoin within the DAFs via a bitcoin ETF or stocks like MicroStrategy. With a bitcoin DAF, the bitcoin can be donated directly, it remains within the DAF on-chain in mutli-signature custody, and grants can be made in bitcoin or U.S. dollars to any 501c3.
Bitcoin DAFs have seen great early success, with the world’s first bitcoin grant from a DAF going to Base58 School of Engineering and a one bitcoin grant gifted to the Human Rights Foundation.
- Phil Geiger, VP of product marketing, Unchained
Ask an Expert
Q. How do financial advisors think through a conversation about “giving”?
It all comes back to purpose and the overall intent of wanting to give. I believe that most should consider giving if there is a visceral desire to support others in some form. By leading with selflessness, people are leading with the right perspective in mind.
Q. What resources exist to support people on this journey of giving in a more well-rounded way?
Registered investment advisors are positioned to have more holistic conversations so clients can optimize their giving goals and priorities. Beyond that, The Giving Block is a great educational resource for donors and charitable organizations alike. Last but not least, Endaoment has paved the way by using blockchain technology to streamline the process of on-chain giving via a range of asset types.
Q. Why is giving even more relevant today when the markets are accelerating?
When markets move higher, any realization of gains can create tax ramifications. By design, a DAF allows you to reduce some of your tax liabilities while mitigating the volatility risks of assets that have appreciated swiftly. This could also allow donors to diversify their asset mix more broadly because of the indirect rebalancing effect.
This can also create an opportunity for legacy and multi-generational giving. Deepening values and putting your family in a situation that allows donors to support causes beyond their lifetime is a great way to take a tip from the Rockefeller family, which has been giving to philanthropic causes for six generations.
- Eric Tomaszewski, Financial Advisor, Verde Capital Management
Keep Reading
Bitcoin reached a new all-time high of $107,000 on Monday after President-elect Trump reiterated he would create a U.S. bitcoin reserve.
The City of Vancouver, Canada, passed a motion to explore bitcoin reserves and become a “Bitcoin-Friendly City.”
The European Union's Markets in Crypto-Assets (MiCA) Regulation is set to come into full effect next month.
