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.
- 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.
- Cryptocurrency gifts made by an individual worth less than $15,000 are not taxable events until the recipient decides to sell.
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.
Regardless of which side of the fence you sit 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 e-commerce companies now accept digital assets as a method of payment, meaning they can be used to shop and pay bills. Add to this 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?
There are reportedly now more than 6,000 cryptocurrencies in the market, which makes choosing one harder than ever.
Unless you or the person you are giving the gift to 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, however, 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 writing, was valued at nearly $58,000, 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, and then weigh up 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
Thanks to their soaring popularity, in part because of their speculative nature, cryptocurrencies are now much easier to buy. Here are some of the common ways that these digital assets can be gifted.
Several websites sell cryptocurrency gift cards. Find one that looks trustworthy, preferably has 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 figure 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 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, 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, water and 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 prices varying depending on the features they offer.
If you want the gift to be a bit fancier, it is 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 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 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 you, the donor, paid. In other words, if a coin was bought for $100 and then sold five years later for $500, the recipient of the gift would be taxed on a $400 profit.
Make sure 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 of that magnitude occurs, the IRS will take the lower of the two amounts into account.