People are giving crypto to endowments


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Colleges are being forced to understand crypto quickly.

Recent headlines have focused on higher education endowments investing in crypto funds, but there is another trend surfacing — millennials making crypto donations to their alma maters. These inbound requests to schools has required them to (1) learn what cryptocurrency is, (2) select an option for how to process the donation, and (3) identify the proper tax ramifications for both the universities and the donors.

It is no secret that colleges and universities expend a lot of resources to convince young alumni to make donations, regardless of size, within the first few years of graduation. They do this because it is rumored to be easier to get someone to donate a second time, rather than get someone to donate a first time. Given this context, fundraising teams are eager to accept any form of payment that a graduate would like to use during a donation.

Bloomberg recently noted that the earliest donations on record were in 2014. At the time, higher education institutions had no clue what cryptocurrency was, much less how to accept it legally. Questions revolved around securities law, valuation, taxability, and the technical nature of a new asset type.

When I interviewed Caitlin Long on the Off The Chain podcast, she told a story about trying to make a Bitcoin donation to her alma mater years ago but was rebuffed. The school realized it would be illegal to accept the donation because of money transmitter laws, along with other legal obstacles. Rather than walk away, Caitlin went to work with legislators to propose (and ultimately get approval for) new rules for anyone using cryptocurrency in the state of Wyoming.

While not every donor would be willing to go this far to make a donation, universities are quickly learning the nuances of what has become a large opportunity to tap into their young alumni base. I wouldn’t be surprised if the percentage of donations in crypto per year continues to grow as the crypto market grows and matures.

This phenomenon has a number of positive effects:

  1. Universities are raising more capital to support education. There are plenty of people who believe higher education is broken, but I still believe it is a net positive for majority of people who attend.

  2. More organizations and individuals are becoming crypto users. Any increase in adoption, regardless of the reason, is a good thing at this point.

  3. Endowments will become familiar with the asset class faster. Some colleges and universities will be forward thinking enough to invest directly in crypto, but most will learn only when they are forced to. Having to manage crypto from donors is a great way to grab their attention.

Endowments are some of the first types of organizations to deal with this scenario because their target donor base tends to skew younger. As this cohort of people grows older, and as crypto becomes more popular, every non-profit will eventually have donors offer crypto donations. This type of adoption won’t move market prices, but it further legitimizes the industry as a serious asset class in the minds of institutions.

Satoshi created a peer-to-peer electronic cash system to take on government-backed fiat currency. Now, young crypto enthusiasts are using that magic internet money to fund higher education.

Just wait till the crypto wealthy start demanding changes to the content being taught in those schools…

-Pomp


The “Off The Chain” podcast has been downloaded 110,000+ times in 120 countries. You can listen to the latest episode with Josh Brown, CEO of Ritzholt Wealth Management now: Click here for Off The Chain podcast


THE RUNDOWN:

Crypto startup that lets you 'short' Ethereum raises $10 million: A startup called dYdX has raised $10 million in funding from investors to develop financial software that allows people to borrow money from one another without using a broker. The five-person company developed a margin trading protocol based on the computing network Ethereum. It aims to allow people to create new cryptocurrency-related financial products, like interest-generating loans, short sells, or leveraged long positions. Read more.

Global AML watchdog to release crypto regulations by next June: The global watchdog for money laundering will set up its first rules on oversight of cryptocurrencies by June, a major step towards creating international standards for an asset currently subject to patchy regulations. The Paris-based Financial Action Task Force said on Friday jurisdictions worldwide will be required to license or regulate cryptocurrency exchanges and some firms providing encrypted wallets, to help stamp out the use of digital money for money laundering, terrorism financing or other crimes. Read more.

North Korean hacking group Lazarus stole $571 million in cryptos: North Korean hacking outfit “Lazarus” is the most profitable cryptocurrency-hacker syndicate in the world. Since 2017, internet baddies have in total stolen $882 million worth of cryptocurrency from online exchanges, but none have done it quite as well as the infamous North Korean group. Lazarus was reportedly behind 14 hacks on crypto exchanges since January 2017, reaping a massive $571 million from the attacks. Read more.

Ethereum's Constantinople hard fork is being delayed until 2019: Ethereum's next hard fork, dubbed Constantinople, will be postponed until early 2019. Initially targeted to activate in November this year, developers opted to postpone the hard fork push after several bugs were found in the code that was released on a test network. Now aiming for sometime in late January or February, developers on the call Friday agreed that moving ahead with the hard fork next month would be unwise. Read more.

ING bank launches zero-knowledge tech for blockchain privacy: ING Bank is continuing further down the path of advanced blockchain privacy with the release of its Zero-Knowledge Set Membership solution, announced this week at the Sibos banking conference. The Netherlands-based lender had already received plaudits for adapting classical zero-knowledge proofs (a way of proving possession of a secret without revealing the secret itself) into a simpler form for use within the bank called zero-knowledge range proofs. Read more.


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