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 almost everywhere around the globe.
Opinions on whether to invest in this asset class vary. 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.
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 lot more in a few years, and you have a potentially versatile gift.
Key Takeaways
- 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 $17,000 for tax year 2023.
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 October 2023, more than 8,900 cryptocurrencies were available, making 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 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.
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.
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.
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.
Gift Cards
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.
Crypto Exchanges
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.
Storing Cryptocurrencies
After you’ve bought the gift, you’ll need to find somewhere safe to store it. Generally, there is the option to hold it on the platform where it was purchased, although it’s advisable to move it offline to somewhere where it cannot be hacked and stolen.
Paper Wallets
The cheapest method to store cryptocurrencies offline is via paper wallet. A paper wallet can be nothing more than a piece of paper on which you write your key codes. 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).
Hardware Wallets
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 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 they offer.
Bitcoin tends to experience a fluctuating value with a range outside most people’s budgets. You don’t need to buy anentireBitcoin, though—typically, fractions of the coin are purchased instead.
Physical Coins
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 (offline) medium, and the coin should be 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 asordinary 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.
Because crypto values can change drastically from one hour to the next, remember to record how much you paid for the gift and how much it was worth when transferring it—even if it was moments later. Without this information, the recipient will have to use the original cost basis (the price you paid), increasing their tax obligation if they sell it for a gain.
Losses, which can be used asdeductionson 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 acryptocurrency gift cardfrom 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’swalletaddress.
How Do You Send Cryptocurrency to Someone?
Often, sending cryptocurrencies is as simple as logging into your wallet or 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 storecryptocurrencies.
The Bottom Line
Giving cryptocurrency as a gift is an excellent way to introduce someone to this new form of currency and provide them with something with a chance to appreciate in value. However, they'll need to understand how to access, store, use the gift, and account for triggering any taxable events. If your recipient has never been exposed to crypto before, you should also consider sending them some usage and tax instructions.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read ourwarranty and liability disclaimerfor more info. As of the date this article was written, the author does not own cryptocurrency.
As an enthusiast with a deep understanding of cryptocurrencies, I want to emphasize the transformative nature of this digital asset class. The increasing integration of cryptocurrencies into mainstream conversations and their adoption by various industries, including e-commerce, reflects their growing significance. I've closely followed the market dynamics, staying abreast of the latest developments, and can attest to the volatile yet intriguing nature of cryptocurrencies.
Now, let's delve into the concepts presented in the article:
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Cryptocurrency as Gifts: Cryptocurrency gifts serve both as speculative investments and as a digital equivalent to cash for online transactions. The article rightly notes the ease with which these gifts can be acquired, making them accessible to a broader audience.
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Variety of Cryptocurrencies: The article mentions the vast number of cryptocurrencies in the market, exceeding 8,900 as of October 2023, according to CoinMarketCap. Despite the multitude of options, it suggests focusing on well-established cryptocurrencies like Bitcoin, Ethereum, or Solana unless there are specific preferences.
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Volatility and Risk: The inherent instability of cryptocurrency prices is emphasized, cautioning against impulsive buying and panic selling. This aligns with the reality that cryptocurrencies are high-risk investments, requiring careful consideration and research.
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Methods of Gifting Cryptocurrencies: The article outlines practical ways to gift cryptocurrencies, including through gift cards or crypto exchanges. The choice between these methods depends on the giver's familiarity with crypto platforms.
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Storage Solutions: Storing cryptocurrencies securely is crucial. The article suggests paper wallets, which are cost-effective but less secure, and hardware wallets, which are considered a more robust option due to their offline nature.
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Physical Representation of Cryptocurrencies: The article introduces the idea of creating physical coins as a more tangible and visually appealing gift. However, it emphasizes the temporary nature of this option, urging the transfer of funds to more secure storage.
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Tax Implications: The tax implications of gifting cryptocurrencies are discussed, emphasizing that, under the current tax laws, giving cryptocurrency is generally not a taxable event. However, taxes may apply when the recipient decides to sell the gifted cryptocurrency, depending on the gains made.
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Recording Transactions: Proper documentation of the transaction details is highlighted as essential, especially given the volatile nature of cryptocurrency prices. This includes recording the purchase price and the value at the time of transfer to ensure accurate reporting for tax purposes.
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Cryptocurrency Wallets: The article recommends hardware wallets as a secure means of gifting crypto wallets. These devices are described as small, waterproof, virus-proof, and widely regarded as the safest option for storing cryptocurrencies.
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Educational Considerations: Lastly, the article advises that recipients of cryptocurrency gifts should be educated on how to access, store, and use the gifted assets. Additionally, they need to be aware of potential tax obligations associated with future sales.
In conclusion, gifting cryptocurrencies can be a thoughtful and potentially lucrative gesture, but it requires careful consideration of the recipient's preferences, knowledge level, and the dynamic nature of the cryptocurrency market.
