Cryptocurrencies are no longer just the domain of fintech nerds. Even the least technologically inclined among us have heard of them, with their volatile price swings and surges in value making the news in pretty much every corner of the globe.
Opinion on whether to invest in this asset class is varied. Plenty of experts warn that digital money such as Bitcoin will never become entirely mainstream and are, therefore, overpriced and destined to plummet in value. Others take a more positive view, claiming that cryptocurrencies are the future, that people buying them now can still make a fortune, and that they, as a result, should be high on our shopping lists.
- Cryptocurrency gifts can function as a speculative investment or simply as an equivalent to cash to buy things online.
- These digital assets are now fairly easy to buy and gift. Options include purchasing a gift card or using a cryptocurrency exchange.
- Once you’ve acquired the gift, find a safe place offline to store the information needed to access it—assuming the recipient isn’t already a cryptocurrency investor.
- Until the recipient decides to sell, cryptocurrency gifts are not taxable events as long as they are less than the annual gift tax exclusion amount. For the tax year 2021, the annual exclusion is $15,000 and increases another $1,000 for the tax year 2022.
Regardless of which side of the fence you’re on, the concept of cryptocurrencies making good gifts can’t be entirely dismissed. Sure, they may shed value quickly. However, most people would agree that cryptocurrencies are exciting and growing in relevance.
An increasing number of ecommerce companies now accept digital assets as a method of payment, meaning that they can be used to shop and pay bills. Add the possibility that they could be worth a whole lot more in a few years, and you have a potentially versatile gift.
Which Cryptocurrency Would Make a Good Gift?
CoinMarketCap keeps a running count of cryptocurrencies in the market at the top of their website, as well the number of exchanges, and total market capitalization. As of Feb. 16, 2022, there are over 17,500 cryptocurrencies available, which makes choosing one harder than ever.
Unless you or the person to whom you are giving the gift have something specific in mind, it may be best to settle on one of the more mainstream, well-established options, such as Bitcoin, Ethereum, or Ripple. There’s been an influx of new, cheaper entrants in recent years, but it remains to be seen whether they will gain the same level of popularity and staying power as the more established coins.
One Bitcoin, at the time of this writing, experiences a daily fluctuating value between $43,000 to over $44,000, which is probably out of most people’s budgets. You don’t need to buy an entire Bitcoin, though—typically, fractions of the coin are purchased instead.
As an investment, cryptocurrencies are high-risk, and it is crucial to review your options before buying. Do some homework on the coins that entice you most, then weigh their future prospects and determine if it’s reflected in the price. As this is a gift, it would also be wise to consider what the recipient might want.
Cryptocurrencies are not stable investments. Prices can swing wildly from one day to the next, meaning it is essential to keep a cool head and avoid hasty buying and panic selling.
How to Gift Cryptocurrencies
Several websites sell cryptocurrency gift cards. Find one that looks trustworthy, preferably has good reviews, and offers what you want, then select the amount that you wish to gift and pay for it.
Once the payment is made, you’ll be sent a gift card worth the figure that you deposited. Similar to how standard retailer gift cards work, the recipient can redeem the gift by going on the same website and entering the details displayed on the card.
Another option is to gift cryptocurrency via an exchange. If you aren’t already a crypto investor, you’ll first need to choose an exchange, set up an account, and decide on a payment method. When you’re up and running, purchased digital currencies can then easily be sent to your donee's wallet address.
After you’ve bought the gift, you’ll need to find somewhere safe to store it. There is the option to hold it on the platform where it was purchased, although it’s generally advisable to move it offline to somewhere where it cannot be easily hacked and stolen.
The cheapest method to store cryptocurrencies offline is via paper wallet. A paper wallet is created by visiting a specialized website that generates keys and corresponding QR codes at random and essentially results in a printed piece of paper containing all of the information needed to access purchased cryptocurrencies and facilitate transactions.
Once you have created a paper wallet and printed it, you must make sure not to lose or damage it. If that were to happen, then the donee would no longer be able to access the virtual currencies sent to the address. It’s also important to keep it in a safe place—if someone were to find it, they could access the digital assets and steal them.
A more secure storage solution is the hardware wallet. Hardware crypto wallets are essentially a USB drive device. They are small, waterproof, virus-proof, and regarded by many in the industry as the best place to ensure that private keys—the critical data used to authorize transactions on the blockchain network—are safe and secure.
These wallets are offline, making them harder to hack than a computer or smartphone, and can be bought fairly easily, with various prices depending on the features that they offer.
If you want the gift to be a bit fancier, it’s possible to buy physical coins. These coins are quite impressive to look at and can be used to store digital currency.
Each one contains a unique address and a redeemable private key, which is located underneath the tamper-proof hologram. Aside from functioning as a useful storage device, these coins have also become collectibles, meaning that there is a chance that they will appreciate in value.
How Are Cryptocurrency Gifts Taxed?
Giving cryptocurrency to loved ones is usually not a taxable event. Unless the transfer exceeds the gift tax allowance, the Internal Revenue Service (IRS) only needs to be alerted when the asset is eventually sold by the recipient and a capital gain or capital loss is realized.
If the recipient sells the gift within one year at a profit, they will have made a short-term capital gain, which is taxed as ordinary income. Beyond that date, it becomes a long-term gain, which is taxed at lower capital gains rates.
The size of the gain is determined by how much was paid by you, the donor. In other words, if a coin was bought for $100 and then sold five years later for $500, then the recipient of the gift would be taxed on a $400 profit.
Make sure that you record how much you paid for the gift, as well as how much it was worth when you transferred it. Without this information, the recipient will have to recognize a $0 cost basis, increasing their tax expenses.
Losses, which can be used as deductions on the investor’s tax return, work slightly differently. A capital loss is only registered if the asset is sold for less than both what it was initially bought for and its fair market value when it was gifted. If a loss occurs and it exceeds the capital gains, then the individual filers can claim up to a $3,000 deduction while married, filing separately can each deduct $1,500.
Can I gift cryptocurrency?
Yes. You can purchase a cryptocurrency gift card from one of the handful of online retailers that offer them or take the more traditional route, buying cryptocurrency on a registered exchange and then sending it to the beneficiary’s wallet address.
How do you send cryptocurrency to someone?
Often, sending cryptocurrencies is as simple as logging into the account where you hold them and then sending the amount of your choice to the recipient’s wallet address—a long string of characters, similar to a bank account number. Thankfully, QR codes can remove the stress of inputting these characters—which, if typed wrong, could effectively mean sending money to the
Generally, it can take anything from seconds to a few minutes for the transfer to go through. However, there might be a “gas fee”—a payment made to compensate for the computing energy required to process and validate transactions on the Ethereum blockchain.
How do I gift a crypto wallet?
If the person to whom you are gifting cryptocurrency isn’t already investing in virtual coins, chances are that they won’t have a wallet to hold cryptos. It’s possible to store cryptos on the platform where they are purchased, although it’s generally advisable to hold them in a more secure offline location that is less prone to hacking.
One of the best options is to buy a hardware wallet. These readily available USB drive devices are small, waterproof, virus-proof, and widely regarded as the safest way to store cryptocurrencies.