How to Gift Cryptocurrency Ahead of the Holidays
If giving cash or gift cards seems a bit boring nowadays, consider a gift you can’t fold into a card: Cryptocurrency.
The digital asset’s popularity has surged in recent years. Well-known coins like Bitcoin and Ethereum keep hitting record highs, everyday investors are buying up cryptocurrency with Venmo and Cash App, and trading digital assets via apps like Robinhood and popular exchanges like Coinbase.
If someone in your life wants in on the action, you may consider gifting them cryptocurrency. Here’s how to do it.
Decide which cryptocurrency to gift
So which of the more than 14,000 cryptocurrencies in existence are you going to give?
You’ve likely heard of Bitcoin — the largest crypto asset by market value — but there are tons of altcoins (cryptos that aren’t Bitcoin) out there as well. There are cryptocurrencies like Ethereum, Solana and Avalanche that experts say are advancing blockchain technology, the underlying technology cryptocurrencies run on. There are also stablecoins, which have values that are tied to an outside asset like gold or the dollar, and those that have specific purposes, like tokens video gamers can win and turn into actual money. There are also coins with no purpose at all like Dogecoin and Shiba Inu coin.
With more and more cryptos being created everyday to support new innovations like NFTs, it might be hard to decide on one. But when buying these digital assets for yourself or a gift recipient, experts say to stick with the more well-known, established cryptos, especially if you are a beginner.
You can research cryptocurrencies on sites like CoinMarketCap and CoinDesk, but keep in mind that the safest cryptocurrencies include those offered on apps where newbies can buy, like Venmo. (On Venmo, you can buy Bitcoin, Ethereum, Litecoin and Bitcoin Cash.)
Buy Bitcoin and other cryptocurrencies
Once you decide to give cryptocurrency as a gift, you still have more decisions to make, like how you’re actually going to send it to your gift recipient.
Cryptocurrency exchanges are one of the most reliable and secure ways to give crypto, says Franck Kengne, lead product manager at the cryptocurrency exchange Gemini. Plus, it allows new users to not only receive cryptocurrency, but also store, send and buy additional cryptocurrency if they want to.
Receivers will need to create an account with the exchange and add a payment method like a bank account, credit card or debit card (in case they want to purchase more crypto in the future). Then, they’ll share their public key — which acts like a wallet address — with the sender, Kengne says. The key can be a QR Code or a long series of random letters and numbers.
The sender will then scan the QR code or copy and paste the public key into the recipient field in their own crypto wallet. The receiver should then be able to open their wallet and choose to receive the payment. Voilà: You’ve given cryptocurrency.
The process may look different across exchanges, but you can often find a guide on how to send crypto for the specific exchange, like Coinbase and Binance. While not an exchange, you can also send cryptocurrency on Cash App.
Crypto gift card
You can also give the gift of Bitcoin or another cryptocurrency with a gift card.
Some platforms, like BitCard, allow you to add U.S. dollars to a card which can be redeemed by the gift receiver for crypto. And some exchanges also have bitcoin gift cards integrated on their platforms. With Binance, for example, you can design a gift card yourself and include a personalized message with the Binance app.
But be wary of scams. Tens of thousands of people get swindled by gift card scams every year, and cryptocurrency is a useful tool for those scammers since the payments are so easily sent and are irreversible.
The Federal Trade Commission warns that if anyone asks for you to pay for something with cryptocurrency or a gift card, it might be a scam. Be sure to only use well-known platforms that have proven themselves over the years and have good reviews.
In order to give and receive cryptocurrency, both you and your recipient will need a crypto wallet, like a Ledger or Trezor. These are used to store your money securely.
There are many different wallets to choose from, and there are several factors to help you pick the right one, like whether you’re a beginner, want to store only Bitcoin or other cryptos as well, or want access your wallet on your phone versus computer.
As long as you have a public key and private key, you can have a crypto wallet — even if that’s just the information printed on a piece of paper, as is the case with a paper wallet. A public key is like an address that you can share with others to receive cryptocurrency, and a private key is just for you and proves that you’re the intended recipient of a transaction.
While paper wallets were once considered super secure because they can’t be hacked, they’re no longer the recommended method of storing cryptocurrency. A paper wallet is a piece of paper with keys and QR codes printed on it. Those keys and QR codes can be generated via an online generator, like WalletGenerator.net. To use the crypto on your paper wallet, you need to “sweep” the crypto into a live wallet or exchange like Coinbase by scanning the QR code or typing in the key information.
But the problem is that even if a piece of paper can’t be hacked, those generators or even networks your printer is on can be. (And of course, if you lose or damage that piece of paper, your crypto is gone forever.)
Cold wallets keep your private key offline, often on a piece of hardware like a USB drive.
While that makes them very difficult to hack — a hacker would need to get your hardware wallet and be able to crack your password — it does mean that losing your wallet without a backup means losing all of your money.
Hot wallets are digital and connected to the internet.
While they’re super accessible since you can get to them via your phone or computer anywhere there’s internet, they’re also more susceptible to hacks than cold wallets. Plus, if you are using a custodial wallet — like you might while trading on a platform like Robinhood — the platform actually holds your wallet, not you.
Educate your gift recipient on cryptocurrencies
If you’re sending cryptocurrency to someone who has never owned the digital currency, Kengne recommends including step-by-step guidance on how to receive crypto taped to the holiday or birthday card. And while cryptocurrency can be a great gift, you want to make sure the recipient has a disclaimer about the risks of owning cryptocurrency.
“The market is volatile, especially with crypto,” says Daniel Rodriguez, chief operating officer at Hill Wealth Strategies. “Your $100 might not necessarily be $100 by the time it’s cashed in.”
Just take a look at Bitcoin: The cryptocurrency lost 50% of its value between April and July of 2021, before surging to an all-time high of above $68,000 in November.
A cryptocurrency investor should also understand that the future of the asset is uncertain. China recently outright banned crypto, and it’s always possible the U.S. could do the same. Even if cryptocurrency isn’t banned, regulation could change how it can be bought and sold.
Plus, just because cryptocurrency is technically digital money doesn’t mean you can spend it on whatever you want. In fact, while the list of companies that accept Bitcoin as payment is growing, you still can’t make most of your everyday purchases with the cryptocurrency.
Still, crypto advocates see the asset as the future of finance and say that it is a solid store of value. Financial advisors tend to recommend that if you are going to invest in cryptocurrency, you make it a small portion of your portfolio — no more than 5% — and treat it as a long-term investment.
Tips for gifting cryptocurrencies like Bitcoin
Choosing which cryptocurrency to give and how to send it isn’t the last step. Here’s what else you need to keep in mind:
Your gift recipient should definitely be aware of the tax implications of owning cryptocurrency.
The IRS treats Bitcoin and other cryptocurrencies like property, which means if you make a profit selling it, you need to pay taxes. Crypto is taxed much like stocks. Short-term gains, which are gains you made after holding the asset for less than a year, are taxed at the same rate as your ordinary income tax, while long-term gains, are taxed at 0%, 15% or 20%, depending on your income.
Simply giving the cryptocurrency, however, isn’t a taxable event unless the amount exceeds the gift tax allowance, which is $15,000 for 2021.
Keep in mind that exchanges may not charge fees for you sending cryptocurrency from your wallet to your recipients if you’re both using the same platform, but they do charge fees for trading.
For example, Coinbase won’t charge you a fee for storing cryptocurrency or transferring it from one Coinbase account to another, but there is a fee for buying, selling or converting cryptocurrency, which are outlined in Money’s guide to using Coinbase. So if you send Bitcoin from your Coinbase wallet to your loved ones, for example, they will be charged a fee if they sell or move that cryptocurrency off of the Coinbase platform.
When you’re sending cryptocurrency, be sure to pay very close attention to the details that go into a transaction as the nature of crypto makes the transactions basically irreversible. Confusing one number or letter in someone’s Bitcoin address could mean that the Bitcoin you meant to send as a gift goes to a stranger’s account and is lost forever.
Gemini recommends setting up multiple wallets and practicing sending transactions back and forth to yourself, Kengne says. You can use two phones, a computer and a phone or even two mobile wallets on the same phone.
When you give someone a birthday card with a wad of cash in it, the biggest risk is it getting stolen or lost if they don’t keep it close.
But because cryptocurrency is digital, you can’t store it safely in a piggy bank. That’s why it’s important for you and your recipient to decide which type of wallet is best for them. As mentioned, hot and cold wallets both have their pros and cons.
Money has a list of the best crypto wallets of 2021 to help you out.
Gift cryptocurrency FAQ
How can you give Bitcoin or another cryptocurrency as a gift?
As long as you and your recipient are willing to have crypto wallets, you can give cryptocurrency as a gift.
The two common ways to do so are with gift cards that can be redeemed for cryptocurrency or by sending someone the gift via an exchange.
How can you buy cryptocurrency with a gift card?
You can buy cryptocurrency via a gift card with a platform like BitCard, which allows you to add USD to the card and have your recipient redeem the card for cryptocurrency.
Some popular cryptocurrency exchanges, like Binance, also let you design a gift card and include a personalized message right in the app.
Are cryptocurrency gifts taxed?
Your cryptocurrency won’t be taxed as long as it’s below the gift tax allowance, which is $15,000 for 2021.
However, the IRS treats cryptocurrencies like property, so if your gift recipient sells the crypto you give them and makes money on it, that profit is taxable. Crypto is taxed much like stocks so the seller will owe short-term capital gains tax if they held the cryptocurrency for less than a year and long-term capital gains tax if they held it for more than a year.
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