The bitcoin craze of 2017 has created a new breed of benefactor this holiday season, as those who were smart, hip, or lucky enough to buy in early can now afford to be charity kings and queens for the holiday season — and get a huge tax benefit to boot.
The astonishing run-up in prices for crypto currencies, with bitcoin going from $1,000 at the beginning of 2017 to a recent high of nearly $20,000, has prompted investors to give away parts of their fortunes. The charitable affiliate of Fidelity Investments, among the nation’s largest managers of donor funds, reports taking in $22 million in donations of bitcoin this year — half of that in December alone. Fidelity received about $7 million in bitcoin donations in 2016, the first full year of accepting those currencies.
Bitcoin investors can get a double benefit: donating just a little bit of original investment can yield an enormous tax benefit, which can then be used to reduce taxes on other income, including profits from cashing in their principal.
“If they don’t need the money, and they’re savvy, it’s a smart move for them in the next few weeks,” said Norman L. LeBlanc, director of state and local tax services at Boston-based accounting firm KLR. He noted the run-up coincides with the time of year when people do most of their giving.
Kirill Bensonoff, who organizes a group of Boston-area crypto currency enthusiasts, said many of them are feeling generous this year.
“If they made a significant amount of money in crypto currency, the primary driver is doing something good with the money rather than doing something with it themselves,” said Bensonoff. “But taxes is a close second, so I think it’s both.”
Bitcoin and other digital currencies are based on technology that creates secure online transactions while minimizing fraud. But they are not backed by any real assets or government endorsement, and are prone to wild swings in price. Indeed, in just the last week the value of bitcoin on Coinbase, one of the more popular exchanges for the crypto currency, dropped by nearly 40 percent.
At Fidelity, bitcoin gifts are cashed immediately, so the charitable operation has locked in December donations when prices were at their highest. The company directs the proceeds to causes chosen by donors.
“They’re going to give anyway,” senior vice president Matt Nash said of Fidelity’s charitable givers. “When they give, however, their view is that they should give the best asset that they can.”
One anonymous bitcoin investor, who first bought when prices were in the single digits, posted on the Internet chat site Reddit in December that he or she would be giving away 5,057 bitcoins—$86 million at the time. The motto of the donor’s charity, the Pineapple Fund : “Because once you have enough money, money doesn’t matter.”
“Bitcoin has changed my life, and I have far more money than I can ever spend. My aims, goals, and motivations in life have nothing to do with having XX million or being the mega rich,” the investor wrote. “So I’m doing something else: donating the majority of my bitcoins to charitable causes.”
Still, bitcoin and other digital currents are in their infancy, and charities such as The Boston Foundation and the Catholic Charitable Bureau of the Archdiocese of Boston, said they have not received major bitcoin donations
Another prominent Boston foundation, Combined Jewish Philanthropies, said it doesn’t accept them, while the United Way and the American Red Cross said they would. Charitable advisers such as Fidelity can steer donations to causes that don’t accept crypto currencies.
The US Luge Team is calling on bitcoin winners to steer some of their bounty its way, with a cheeky appeal that likens the thrill and risks of investing in digital currencies with hurtling down an ice tunnel at dangerous speeds.
“Lugers and bitcoiners are very similar psychologically,” said Boston investor Ty Danco, a former Olympic luger who helped organize the bitcoin campaign. “You’re willing to try something different, you’re open minded about it, but you’re very technical . . . Other people don’t get it and that’s fine. We know it and we love it.”