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Despite its volatility, crypto is popular with investors. For those looking to give a financial gift this holiday season, crypto might be a fun way to do just that.
If you’re considering giving crypto, this article will cover how and where to buy it and important things to consider, such as potential tax implications. When giving a gift like crypto, a good rule of thumb to keep in mind is to invest no more than you – or your loved one – is willing to lose.
The Short Version
- You can give crypto as a gift through a crypto exchange, digital gift card, or peer-to-peer payment platform.
- Popular cryptocurrencies to give include Bitcoin, Ethereum, Solana, or meme coins like Shiba Innu.
- Recipients can receive crypto through a hot wallet or a physical cold or paper wallet.
🎁 Which Cryptocurrencies Should You Give?
When you give cryptocurrency to a first-time crypto holder, start with the ones you and the recipient are most familiar with. This will probably be a mainstream cryptocurrency like Bitcoin, Ethereum, or Solana.
This is a great place to start because a lot of information and resources are available to learn more about these cryptocurrencies. If your gift recipient is interested in using their crypto to buy a different digital asset, such as an NFT, a more mainstream coin will allow them to do just that.
You could also consider stablecoins. These cryptocurrencies aren’t as volatile as other coins, like Bitcoin, because stablecoins are pegged to an external asset like the U.S. dollar. Popular stablecoins include USDC and Tether. While stablecoins aren’t entirely risk-free, they can be much less volatile.
A popular meme cryptocurrency can also be a fun option to give as a gift. Coins like Dogecoin or Shiba Innu aren’t necessarily valuable investments, but they can be a fun thing to give. And if Doge goes to the moon, the recipient will also benefit from its rise.
One last option to consider is a cryptocurrency tied to something meaningful to the recipient. For someone interested in environmental causes, consider giving Algorand, one of the first cryptocurrencies to become carbon negative. Meanwhile, a gamer may appreciate a cryptocurrency tied to a popular game they play.
🎁 How to Gift Crypto
When it comes to actually buying crypto, there are a few different ways you can do it.
1. Use an Exchange or Broker.
One option is to purchase crypto directly from an exchange like Coinbase. The popular investing app Robinhood has a crypto gifting option as well.
In most cases, all you have to do is set up an account for yourself, link it to an external bank account, and add funds. Once you’ve done that, you can purchase the crypto you’d like to give. To deliver it, simply send it to the recipient’s wallet address.
If the person receiving your gift doesn’t have a wallet, you can hold the crypto in your wallet until they set up an account for themselves. Once they’ve done that, you can send the crypto from your wallet to theirs.
2. Send the Crypto Through Your Favorite Payment App
You can also use a peer-to-peer payment platform to gift crypto. Popular mobile platforms like Cash App, PayPal, and Venmo have crypto gifting features. While the cryptocurrency options are limited, this can be an easy entry point for someone new to crypto.
3. Buy a Crypto Gift Card.
For someone who has never used crypto before, one of the easiest ways to get started is to buy crypto gift card from an online retailer. BitCard, for example, allows you to load a digital gift card with U.S. dollars. And the recipient can then use the card to buy Bitcoin.
When you give the gift of crypto using a third-party platform or digital gift card, it is important to be on the lookout for potential scams.Gift card scams are already a popular way to defraud unsuspecting victims. What makes crypto different is that the loss is irreversible; once a scammer has your crypto, it’s gone forever.
🎁 Are There Any Taxes or Fees With Gifting Crypto?
When it comes to taxes giving crypto as a gift, it is typically not considered a taxable event. However, if the crypto value exceeds the annual gift tax allowance, you might be liable for paying taxes.
The recipient will not have to pay taxes unless they sell their crypto, making it a taxable event. This is because crypto is treated like property and follows existing capital gains tax rules.
If the recipient sells their crypto within one year at a profit, they will have to pay short-term capital gains tax. This is typically taxed as regular income. Conversely, if they sell their crypto at a loss, there might be an opportunity to claim a tax deduction.
Aside from short-term tax implications, buying and selling cryptocurrencies may also incur fees. Some centralized exchanges, like Coinbase, may charge a transaction fee when you send crypto from one wallet to another.
You can also buy crypto directly from a decentralized exchange. You may have to pay gas fees if you decide to do this. This is a fee that is charged to process transactions on a blockchain. Each cryptocurrency has its own gas fees, and some can be pretty high. You can use a site like Etherscan to get up-to-date gas prices.
🎁 How to Store Your Gift
Once you’ve purchased crypto, there are a few different ways to store it. Centralized exchanges, like Coinbase, act as custodians and store your crypto on your behalf.
You don’t have to remember your private key with a custodial wallet. That makes a custodial wallet a good option if you are afraid of losing your keys (and thus losing your crypto).
Custodial wallets do come with risk, though. If the entire exchange is hacked, your asset portfolio can be exposed. Additionally, if the exchange files for bankruptcy, you could lose whatever assets you have stored with them.
Aside from a custodial wallet, you can also choose from several types of non-custodial wallets. While these wallets give you more direct control over your crypto, they come with more responsibility and thus risk. You are responsible for remembering your private key. If you ever lose your keys, your crypto is unrecoverable.
Need a wallet? >>> The Best Cryptocurrency Wallets
Below, we compare the three different types of non-custodial wallets: hot wallets, cold wallets, and paper wallets.
Hot Wallet
A hot wallet is a non-custodial digital wallet connected to the internet. When you set up your hot wallet, you are issued a private key usually represented by a mnemonic phrase. MetaMask is an example of a popular hot wallet.
Hot wallets are simple to use and easy to access anywhere you have an internet connection. Most even integrate directly with your web browser.
The benefit of holding cryptocurrency in these wallets is that you can use them with existing DeFi applications. The downside with hot wallets is that they are easier to hack.
Cold Wallet
Cold wallets are physical pieces of hardware the size of a USB thumb drive. Giving a cold wallet – with or without crypto loaded onto it – could be a gift in and of itself. Ledger and Trezor are two examples of popular cold wallets (by the way, both could also be great gift ideas for the crypto enthusiast in your life).
These types of wallets are generally considered to be the safest way to store cryptocurrencies. They aren’t connected to the internet or managed by a third-party provider. This mitigates the risk of being exposed to a hack.
The downside of a cold wallet is that if you ever lose it, your crypto is gone forever. An early Bitcoin adopter learned this lesson the hard way after accidentally throwing away a cold wallet now worth half a billion dollars. He’s currently on a quest to find it by excavating the landfill where the wallet likely ended up.
Paper Wallet
A paper wallet is one of the most cost-effective – and simplest – ways to store cryptocurrency offline. It’s a printed piece of paper created by a key generator program that makes a QR code with the corresponding private and public keys needed to access your crypto.
This type of wallet is another way to physically gift crypto this holiday season. Because it is not connected to the internet, it’s less susceptible to getting hacked.
While this is an easy option, it isn’t necessarily the safest. You lose your crypto forever if you lose the paper with the QR code. Additionally, to use the crypto in the first place, you have to scan it into an existing wallet or onto a custodial exchange like Coinbase. While it defers the exposure to potential hacking, it may not eliminate it.
Read more >>> Hot Wallet vs. Cold Wallet
🎁The Bottom Line
Gifting crypto is easy and can be a creative way to give a financial gift this holiday season. You can give it as a physical gift by purchasing a cold wallet or creating a paper wallet. You can also gift it digitally as a gift card or via an exchange.
Before purchasing any crypto, ensure your intended recipient is set up to receive crypto. If they don’t already have an account or hot wallet, hold the crypto in your account until you can safely transfer it to them.
Crypto, like any asset, does come with its own risks. Make yourself aware of the security risks and price volatility your gift recipient may be exposed to. And remember the most important rule of gifting crypto: give only what you – and your recipient – are willing to lose.
‘Tis the season:
