As cryptocurrencies boomed last year, boosting the wealth of investors in the asset class, so did the amount of philanthropic gifts made with digital tokens.
Fidelity Charitable, the largest grant-maker in the U.S., received $331 million in digital assets last year through its donor-advised funds, or DAFs, a nearly 12-fold increase from the $28 million it got in 2020, according to a report released Tuesday.
Bitcoin accounted for 88% of crypto donations, followed by Ether at 11%.
"We're seeing a mix of donors old and young" with crypto, Jacob Pruitt, Fidelity Charitable's president, said in an interview. The organization's team specializing in complex assets tries to sell donations of digital tokens as quickly as possible, he said, because of their volatility and so donors can grant money faster.
Fidelity Charitable, the nonprofit affiliate of Fidelity Investments, and other providers of DAFs can accept assets that many nonprofits can't, from crypto to stakes in hedge funds and privately owned businesses.
That's helped fuel a surge of wealth into DAFs, because giving non-cash assets directly to charity comes with a big tax advantage: Under Internal Revenue Service rules, donors can both deduct the value of the gift and avoid any capital-gains tax on the investment. Fidelity Charitable has about $50 billion in assets.
Major Player
Last year, two-thirds of donations to Fidelity Charitable came in the form of non-cash assets, according to the organization's 2022 Giving Report. Total contributions have surged, jumping to $15.3 billion in the fiscal year ended in June, up 43% from the previous 12-month period.
Those assets have made Fidelity Charitable a major player in philanthropy. Grants from the organization rose 13% last year to $10.3 billion, building on a 24% surge in donations in 2020.
While grants to human services charities, like food banks and homeless shelters, surged around the time the pandemic hit, last year's big trend was a rise in DAF money going to arts and cultural organizations, increasing the sector's share of Fidelity grants to 9% from 5%.
The popularity of DAFs and the rapid growth of Fidelity Charitable, the largest in the space, have attracted scrutiny from nonprofits, philanthropists and members of Congress, who have voiced concerns that donations are sitting in the funds for too long, providing an immediate tax deduction for money that doesn't reach working charities in a timely fashion.
Bipartisan legislation, introduced in the Senate last year and in the House this month, would place new rules on DAFs, including a provision that provides an upfront deduction only for money distributed within 15 years.
Pruitt warned new rules could have the unintended consequence of slowing down DAF grant-making to the bare minimum.
