Bitcoin News Today – Wharton and Franklin Institute embrace bitcoin gifts
You can pay for a scooter, a pizza, and clothing in Philadelphia with cryptocurrency. In El Salvador, you can pay for anything with Bitcoin, since the Central American country this month became the first nation in the world to accept virtual currency as legal tender.
So it shouldn’t be a shock that one can make a donation to an increasing number of charities with cryptocurrency, a recognition that the digital assets have moved into the mainstream.
The Franklin Institute, the 197-year-old science and technology museum, recently accepted its first Bitcoin gift of about $62,000, a much valued donation after enduring the pandemic year when its doors were closed and revenue plunged.
Other nonprofit institutions and universities are also embracing 21st Century digital currency as a way to encourage philanthropy. The University of Pennsylvania last month announced it had accepted a $5 million crypto donation to support the Stevens Center for Innovation in Finance at the Wharton School.
“We’ve always been at the forefront of technology,” said Larry Dubinski, president and CEO of the Franklin Institute. “We’re just so excited about a gift in the form of this cryptocurrency. It really demonstrates how the institute is adaptable and open the try new things.”
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The Franklin Institute donor, tech entrepreneur Dev Chanchani, 46, bought several Bitcoins about two years ago to explore the cryptocurrency phenomenon. He made the donation in memory of his father Ajay K. Chanchani, a chemical engineer who died in 2018.
“I never really understood cryptocurrency,” said Chanchani, the founder and CEO of the cloud-computing company INetU in Lehigh County, which he sold in 2016 for $162.5 million. “My dad always used to say that you need to jump in the water if you’re ever going to learn how to swim, and so I bought a few Bitcoins.”
By donating an appreciated asset, Chanchani does not have to pay capital gains tax on the increase in price, and he gets to claim a charitable contribution for the full value. It’s a common practice for charities to seek out individuals to donate assets that have grown in value and who want to avoid capital gains taxes at the same time as they do good. (Chanchani is also donating a Bitcoin to Lehigh University, where he got a bachelor’s degree in business.)
“I think the Franklin Institute is a wonderful organization,” said Chanchani. who grew up in Feasterville and now lives in Queen Village. “I grew up going to the Franklin Institute, and I think that today more than ever, it’s important for people to support science.”
Chanchani came away with mixed feelings about cryptocurrency. He said the public is rightly concerned about the carbon emissions from the electricity required to mine Bitcoin and process its transactions. (Miners use computing power to add blocks of transaction data to the bitcoin blockchain and then get rewarded with more bitcoins.)
But he thinks the blockchain technology used in the process has tremendous potential. “The blockchain is amazing and the fact that each step of the ownership of a crypto asset can be verified,” he said.
Still, the transaction was cumbersome, requiring several days to transfer the charitable contribution as the Bitcoin brokers processed the sale. “It’s slow and inefficient,” he said.
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Bitcoin, which was created in 2009, has been tainted by its association with illegal transactions — the hackers who shut down the Colonial Pipeline last month demanded a ransom in Bitcoin, because it can be transferred electronically and anonymously.
But it has also become a favorite investment for legal speculators. The IRS issued a notice in 2014 that “virtual currency” should be treated as property for federal tax purposes, requiring those who sell it to report and document the change in value as taxable income.
That also means that cryptocurrency gifts are treated like stock, art, and real-estate donations: The donor gets to write off the full value of the assets, not just the original purchase price.
Chanchani’s timing on both ends of his Bitcoin adventure were excellent. He bought his Bitcoins in early 2019 when its price had crashed below $5,000 a coin. He donated it to the Franklin a few months ago when it was priced at more than $62,000, near its all-time peak. The price has since plunged to less than $40,000 last week.
Because of the volatile pricing of cryptocurrency, experts in charitable giving recommend that institutions sell the assets as soon as they accept them, the standard practice with most charities that receive gifts of assets like stocks. That way the nonprofits do not run afoul of prudent investment rules if the cryptocurrency should change in value.
“It’s in the best interest of the entity to liquidate the asset as quickly as they can,” said David J. Toll, a lawyer who is senior associate vice president of gift planning at Drexel University, and past president of the Planned Giving Council of Greater Philadelphia, where he wrote a 2019 blog post offering guidance to institutions on accepting cryptocurrency.
Toll said that cryptocurrency brokers typically take about a 4% fee to cover the costs of exchanging Bitcoin into cash, which is similar to what an institution might pay a conventional broker to sell donated stocks, and not dissimilar to the bank fees to process a donation made through a credit card. “That’s just the cost of business,” he said.
Though Toll said he has discussed cryptocurrency donations with potential donors, Drexel has not yet received a gift of bitcoin. But he advises nonprofits to establish a policy and to set accounts with some of the many third-party cryptocurrency brokers who handle such transactions in preparation for the inevitable.
“Eventually somebody’s going to want to make a donation of a cryptocurrency, if it makes financial sense to them” said Toll. “And if you’re not up on it and if you’re if you don’t know how to do it, your charity potentially can lose out on that that gift, right?”
Dubinksi, the president of the Franklin Institute, said he needed to create the mechanism from the ground up for accepting Chanchani’s Bitcoin offer. He consulted lawyers and his board of directors, and various crypto platforms were considered — the Franklin Institute chose to set up its account with Bitpay, one of the popular crypto apps.
At a virtual meeting last week of the Association of Science and Technology Centers, a national organization representing about 500 science and technology centers and museums where Dubinski is chair, Chanchani’s donation to the Franklin Institute gave Dubinski some bragging rights.
“One of the topics of discussion was new revenue streams and you could see the eyes light up of my peers when we started talking about cryptocurrency as a way to bring new revenue,” Dubinksi said. He said he thinks the Franklin Institute is the first institution of its kind to receive a cryptocurrency gift.