Has 2022 been a bust for crypto philanthropy?

The collapse of Sam Bankman-Fried’s cryptocurrency exchange FTX has hastened a nearly year-long crypto market freefall that has worried some nonprofits that accept crypto donations, but hasn’t stopped them from wanting to engage with emerging crypto donors. At the start of this year, Devex wrote that 2022 could be a boom year for cryptocurrency donations, given the increasing number of nonprofits accepting crypto donations directly or through third-party organizations such as The Giving Block, which converts donations into cash for them. At the time, charitable organizations such as UNICEF said that they were stepping up their crypto donation campaigns as that form of giving became more popular with donors around the globe. But now, it looks like the bubble may have burst. It’s been a remarkably unstable year for cryptocurrencies, which have always been volatile. The price of bitcoin, ether and other cryptocurrencies began to plummet in May as investors pulled back from risky assets in response to a toxic mix of rising interest rates, inflation, and economic uncertainty. And then there’s the extraordinarily rapid collapse of FTX, one of the biggest cryptocurrency exchanges in the world, which filed for bankruptcy and is now besieged by allegations that the firm and Bankman-Fried’s hedge fund Alameda Research behaved unethically and misused customer money. The ensuing chaos has further destabilized the market. The value of bitcoin, a popular cryptocurrency, hit a two-year low last week, largely in response to FTX’s collapse. The cryptocurrency firm BlockFi also this week filed for bankruptcy and included a $275 million loan from FTX among its liabilities, or debts owed. Others have seen their finances rocked by the FTX incident. Overall, it has been a remarkably unstable year for the cryptocurrency market, which has reportedly lost more than $1.4 trillion since last November. And while some groups have grown more skeptical, others still believe that crypto is the future of giving and can be beneficial as long as there are safety measures in place. The dollar value of total donations received by Crypto for Charity has certainly fallen as a result of the huge drops in cryptocurrency values, said Ben Simon, director of NFT and crypto community giving at the organization. Crypto for Charity accepts and then converts crypto donations into cash for nonprofits without charging them a fee. The service was launched by online estate planning company FreeWill last December in response to demand from nonprofit partners, which include groups like United Way and the charity assessment organization The Life You Can Save. And while 2022 has not been the banner year many had hoped for, Simon said he still believes there’s room for crypto donations to grow as more donors become aware that it can be an avenue for their giving. “I’m cautiously optimistic that as long as we don’t turbo nuke in the markets, we’ll be alright,” he told Devex in an interview. Up-and-down market Other intermediary groups such as Fidelity Charitable, a major U.S.-based grantmaking organization, said they don’t expect the ups and downs of the market will directly impact nonprofits. Fidelity Charitable allows funders to donate bitcoin and other cryptocurrency assets to charities through donor-advised fund programs. Donors who use that service make crypto donations to Fidelity Charitable, which sells the coins and deposits the funds in a donor-advised fund, according to its website. Fidelity Charitable has seen its crypto donations spike in the past couple of years. It received more than $330 million in such donations last year compared to $28 million in 2020. And it has measures in place to buffer grantees from market instability, according to spokesperson Nabil Ashour. Quickly liquidating crypto donations ensures they maintain the value held at the time of donation. For now, Fidelity is treating crypto donations as it would any other appreciated asset given for charitable purposes, Ashour said. People are giving crypto donations because that is their most appreciated asset and as with any other trend, crypto philanthropy will end when people stop supporting it, Ashour said. Or it will end when crypto currencies are no longer considered an appreciated asset. The humanitarian organization Mercy Corps, which accepts crypto donations, also said it plans to stay the course for now. Crypto has “moved into a bear market” these past few months. Despite that crypto giving has remained steady for the organization, said Jeremy Snyder, managing director of high impact philanthropy at Mercy Corps. Mercy Corps told Devex earlier this year that it would place “greater emphasis on cryptocurrency donations,” which it had been quietly accepting but not highly promoting for years. Accepting cryptocurrencies is part of the organization’s larger aim to increase financial inclusion globally. Mercy Corps, which did not provide specific numbers, has seen sustained growth in crypto giving “across all funding areas,” according to Snyder. “I’m cautiously optimistic that as long as we don’t turbo nuke in the markets, we’ll be alright.” --— Ben Simon, director of NFT and crypto community giving, Crypto for Charity “This demonstrates the continued commitment of crypto philanthropists to leverage crypto for good,” he said. A warning for nonprofits Cryptocurrencies can still be a “powerful tool for philanthropy,” Michael Jones, an associate professor of economics at the University of Cincinnati, told Devex in an email. Jones focuses on the impact of cryptocurrencies on nonprofits and said that accepting crypto donations “expands the opportunity to reach a new type of donor since crypto is just another asset.” Still, the FTX scandal should serve as a warning that nonprofits need to perform their due diligence on donors, he said. Bankman-Fried, who had a net worth of $26 billion at the height of his fortune, was one of the most globally-recognized crypto donors. His downfall has become a cautionary tale for the effective altruism movement that he championed. The EA movement seeks evidence to identify where giving can be most effective. And some of the areas that Bankman-Fried and FTX’s philanthropic arms had identified for grants, including global health and development, may be significantly impacted by FTX’s implosion. Jones noted that potential legal actions taken against Bankman-Fried could result in the seizure of his donations to nonprofit and political organizations if they are determined to have come from “stolen FTX customer funds.” There also is the additional complication of a nonprofit being associated with a “criminal or bad actor,” he said. “This is not a new issue though,” Jones added. “Nonprofits have struggled in the past with how to handle donations from entities like the Sackler Family and Purdue Pharma.” The Sackler family owns the Purdue Pharma pharmaceutical company, which makes the controversial OxyContin opioid. Both the family and the company have faced lawsuits in recent years for alleged criminal wrongdoing related to how OxyContin was promoted and prescribed. Some nonprofits that had received money from the Sackler family have since cut ties. Alex Wilson, who co-founded The Giving Block crypto donation platform, also pushed back on the idea that Bankman-Fried was representative of the crypto funder community, as a whole. “Although it's unfortunate to see such reckless fraud, this is just one donor in an industry filled with 300 million users,” he said in a statement to Devex. “What SBF did is horrible and wrong, but it doesn’t slow down or impact all the great work that millions of other people are doing.” The Giving Block, like Crypto for Charity, serves as an intermediary between nonprofits and crypto donors. It has dozens of clients including Mercy Corps and other global nonprofits including Amnesty International and the Global Fund for Children. The organization said it received more than $69 million in crypto donations for nonprofits last year. The Life You Can Save, which promotes the ideas of effective altruism, has partnered with both The Giving Block and Crypto for Charity. Though the organization said it did not receive any money directly from FTX or Bankman-Fried, its co-founder Peter Singer spoke at a “Crypto for Good” fundraiser event for GiveDirectly along with the FTX founder. Information about the event, including a picture of a smiling Bankman-Fried, remains on The Life You Can Save’s website as well as GiveDirectly’s. “We thought it best to leave it up rather than try and act like we were hiding something. Obviously, in retrospect we wouldn’t have had him participate or [former Alameda Research CEO] Caroline Ellison,” said Jon Behar, a strategic advisor at The Life You Can Save. Ellison was head of Alameda Research when both it and FTX collapsed. The fundraiser event raised over $920,000 for GiveDirectly, which provides cash transfers to impoverished people around the world. GiveDirectly spoke to Devex about crypto philanthropy earlier this year but declined to comment for this story. The Life You Can Save’s Behar said that despite the organization’s brush with the FTX controversy, it has no plans to reverse course on crypto philanthropy. “Ultimately, what we’re trying to do is make it as easy as possible for people to give to the outstanding charities that we recommend,” he said. Crypto currencies is “one of many payment methods that we accept and we think that, that’s going to be something that appeals to some donors, and we want to be able to accommodate those donors.”