Cryptocurrencies are no longer just the domain of the fintech crowd. Even the least technologically inclined among us have heard of cryptocurrencies, with their volatile price swings and surges in value making the news in almost everywhere around the globe.
Opinions 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. They believe that people buying cryptocurrencies now can still make a fortune, and that cryptocurrencies, as a result, should be high on our shopping lists.
- Cryptocurrency gifts can function as speculative investments 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. The annual exclusion is $16,000 for tax year 2022 and increases to $17,000 for tax year 2023.
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 payment method, meaning 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, as well as the number of exchanges and total market capitalization, at the top of its website. As of January 2023, there are more than 22,400 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 Solana. There has 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.
Bitcoin tends to experience a fluctuating value with a range outside most people’s budgets. You don’t need to buy an entire Bitcoin, though—typically, fractions of the coin are purchased instead.
Cryptocurrencies are high-risk investments, and it is crucial to review your options before buying. Do some homework on the coins that entice you most, then weigh their prospects and determine if that is 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
Thanks to their soaring popularity and partly because of their speculative nature, cryptocurrencies are now much easier to buy. Here are some common ways that these digital assets can be gifted.
Several websites sell cryptocurrency gift cards. Find one that looks trustworthy, preferably with good reviews, and offers what you want, then select the amount you wish to gift and pay for it.
Once the payment is made, you’ll be sent a gift card worth the amount you deposited. Similar to the way that standard retailer gift cards work, the recipient can redeem the gift by going to 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 easily be sent to the giftee’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 hacked and stolen.
The cheapest method to store cryptocurrencies offline is via paper wallet. A paper wallet can be nothing more than a piece of paper that you write your key codes on. However, you can create one by visiting a website that randomly generates keys and corresponding QR (quick response) codes. This results in a piece of paper containing the printed information you need to access your cryptocurrencies and facilitate transactions.
Once you have created a paper wallet and printed it, make sure not to lose or damage it. Paper wallets are very easily damaged and lost, so it’s best only to use this as a temporary storage method until you can transfer the keys to a hardware wallet (more below).
A more secure storage solution is the hardware wallet. Hardware crypto wallets are essentially USB drive devices. They are small, waterproof, virus-proof, and regarded by many in the industry as the best place to ensure that your private keys are safe and secure.
These wallets are offline, making them harder to hack than a computer or smartphone, and can be bought relatively quickly, with various prices depending on the features that they offer.
If you want the gift to be a bit fancier, buying or creating physical coins with the key printed on them is possible. Some use a holographic sticker on the back with the key printed on it. These coins can be quite impressive because they are custom-printed on a three-dimensional printer using metal or plastic.
Physical coins should be considered a novelty or a temporary solution because they are not as secure as other storage methods. Once the gift is given, the keys should be used to transfer the cryptocurrency to a cold-storage medium and the coin destroyed unless it is printed on a precious metal.
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 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 were bought for $100 and sold five years later for $500, then the gift recipient might be taxed on the profits if they met the other capital gains requirements.
Make sure that you record how much you paid for the gift and how much it was worth when you transferred it. Without this information, the recipient will have to use the original cost basis, increasing their tax obligation.
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 the price for which it was purchased and its fair market value when it was gifted. If a capital loss occurs, filers can claim up to a $3,000 deduction while married—those 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, 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 sending the amount of your choice to the recipient’s wallet address.
How do I gift a crypto wallet?
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.
Investing in cryptocurrencies and other initial coin offerings (ICOs) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.