How to gift crypto?

Can you give crypto away as a gift?

Crypto is no longer just associated with the fintech space. Even those least technically inclined have heard of cryptocurrencies since its surges of value made headlines worldwide. Basically, you cannot search for investments without seeing a bunch of options for crypto assets. 

As more and more people are stepping into the crypto community, crypto is heading to the mainstream direction. Several surveys demonstrated that people are actively thinking of gifting crypto to their loved ones. 

Opinions on the investment benefits of crypto assets vary, but an increasing number of users, either business or individual, jumped on the crypto bandwagon. For example, many e-commerce businesses accept crypto assets as a payment method. 

Cryptocurrency is a unique asset that is easy to send to anyone with a compatible crypto wallet. However, it is important to know what you are doing for your gift to be received as planned. Given that cryptocurrency transactions cannot be reversed or altered once sent, learning about it stands out as a priority. 

A 2021 survey conducted by BlockFi found that nearly 1 in 10 Americans were planning to gift crypto during the holiday season.

We have laid down a guide on gifting crypto assets, along with taxation issues and other useful tips for successfully surprising your loved ones with a unique gift. Let’s take a look.

Key advantages of gifting crypto

Even though the crypto market is well-known for its fluctuations, the value of cryptocurrencies has exploded over the last decade. At the time of writing, the global cryptocurrency market cap amounts $1.4 trillion. 

Crypto assets became a popular choice among investors and people that couldn’t access traditional banking services. Its value and popularity stem from demand since the crypto space has proven to be successful in helping people circumvent cross-border trading barriers, inflation and politics. 

For example, we discussed a while ago how decentralised finance (DeFi) aids people in enhancing their financial freedom and inclusion. To find out more, why not read this article: ‘Can I achieve financial freedom with DeFi?’. 

Despite their volatile nature, cryptocurrencies tend to generate high returns for investors as well. Additionally, gifting crypto presents a taxable event under particular circumstances so most gifts are basically tax-free.  

By gifting crypto, you are disposing of the digital assets without any implications in most cases while also providing someone with an investment that might grow in the future.

How to gift cryptocurrency?

Thanks to the growing popularity of the crypto space, cryptocurrencies are now much easier to buy and gift. Here is a list of some common ways these digital assets can be gifted. 

Transfer funds through an exchange

Cryptocurrency exchanges refer to trading platforms that enable users to purchase a wide array of divergent cryptocurrencies using a selection of fiat money options or other cryptocurrencies. While some exchanges are more suitable for experienced crypto traders, others are more beginner-friendly. 

Transferring digital assets through a cryptocurrency exchange is the simplest method; if you don’t already have any crypto assets to give away, you can simply buy it through a crypto exchange. 

To gift a virtual currency properly, you will need the recipient’s crypto address. For example, the recipient can provide you with their wallet address, looking like a QR code or a long string of numbers and letters. 

To begin using crypto exchanges you will need to create an account, link your bank account or card, either credit or debit card, and complete necessary procedures. 

If you are a crypto novice, we suggest reading this article to find out more: ‘How to buy crypto’.

Issues to watch out for

Given that the gift recipient has a cryptocurrency wallet, it is simple to send virtual assets directly. However, there are two things you need to keep in mind when using crypto exchanges. 

You’ll need to cover transaction fees; depending on which digital currency you plan on sending and which blockchain you use when sending cryptocurrency will determine the exact amount of fees.  

The other thing you need to be mindful of is the question of which blockchain supports tokens you want to send. Some tokens are supported on multiple blockchains while others may not be so diversified.

However, in some cases, sending the wrong kind of tokens to a certain crypto wallet can result in a loss of funds so always double-check which currency is supported by the recipient’s wallet.

Use a peer-to-peer money transfer application

If you are gifting someone who is a crypto novice, peer-to-peer transfer apps are a simple way to do it. You will have to go through a few identity checks on the app and link a payment method for sending cryptocurrency.  

Keep in mind that fees may vary yet they are typically higher than crypto exchange fees or wallet transfers. 

Popular options include applications such as Cash App, Coinbase or Revolut.

Print paper wallets

A paper wallet is another easy way for gifting cryptocurrency. Created for a one-time use they can be simply transferred by handing the paper physically. Keep in mind that this is not the most secure manner to give away crypto so it is best to use it for smaller amounts only. 

A paper wallet shows the location of the cryptocurrency on the blockchain; anyone who holds the paper can access it, and they can also be easily destroyed.  

You can use free paper wallet generators on the internet and create a printable document with a unique public and private key combination. The paper will contain QR codes that are associated with these addresses and enable easy transfers.  

Besides security concerns, paper wallets can be a great gift for special occasions since they come in a tangible form.

Use a crypto gifting service

Sending someone a cryptocurrency gift card is another interesting way to gift crypto. Several platforms and cryptocurrencies provide crypto gift cards, and they function similarly to the traditional gift card service. 

A cryptocurrency gift card can enhance the sentimental value of a crypto transfer. How can the recipient redeem the gift? Simply – after receiving a cryptocurrency gift card, the recipient needs to log into the same website or crypto exchange and enter the details that were added to the crypto gift card. 

In case the recipient redeeming a crypto gift card has already got a cryptocurrency wallet, the gifted digital assets can be directly deposited there.  

Even though crypto gift cards sound like a great way to surprise someone with digital money, you should tread carefully to avoid scams. Divergent crypto providers stand out as more legitimate than others. As usual, do your homework before using a particular service.

Create a software wallet

This way of gifting cryptocurrencies requires a bit more effort; you have to install software to generate a wallet to transfer. Start by downloading a desktop or mobile wallet and set up an account. 

The vital step of this procedure requires copying down the seed or recovery phrase generated by the crypto wallet. It looks like a set of 12 or 24 random words. Keep in mind that the seed phrase is the key to recovering the funds or transferring them to another person.  

Once you are done with this part, you can send cryptocurrency to the created wallet address. The seed phrase is all the recipient needs to access the funds.  

Creating and managing crypto wallets doesn't require a lot of technical expertise, yet there is less room for error. Basically, losing that info means it is lost forever.

Wrap a hardware wallet

Hardware wallets are a great gift; these wallets are physical devices that can be wrapped. Additionally, it is the most secure storage solution as it comes in the form of a USB drive device.  

Hardware wallets, also known as cold storage, present the best place to ensure that private keys are safe. They are not connected to the internet which makes them harder to hack as compared to software wallets. 

To gift crypto in the form of a hardware wallet, you will need to buy a device first, set it up and download the accompanying software. Once funds have been added to the hardware wallet, you can wrap it and give it along with the seed phrase. 

Gift physical coins

If you want a fancier option, physical coins are a suitable way to do it. Besides looking elegantly, physical coins serve as a storage option as well. 

Each physical coin encompasses a redeemable private key and unique address located under a hologram. It can also become a collectible asset as well and appreciate value in the future. 

Even though physical coins look stunning because they are custom-printed using plastic or metal, they should be just a temporary storage solution due to security reasons. 

How to gift NFTs?

Given that non-fungible tokens (NFTs) gained a lot of popularity over the last few years, you might come up with an idea to gift your loved ones with pieces of digital art. 

The process of gifting NFTs is similar to sending cryptocurrency from a crypto exchange to someone’s wallet; yet instead of a crypto exchange, you’ll purchase it on an NFT marketplace. 

If you’re interested in purchasing a specific NFT, be sure to check on which NFT marketplace is that digital item available. Whether you are searching for a particular NFT or interested in browsing a wide array of tokens, keep in mind that you’ll need to set up a compatible crypto wallet. 

When you finish your purchase, you can send it from the marketplace or your wallet to the recipient by pasting the receiving address and paying the transaction fee.

Do you need to educate the gift recipient on cryptocurrency gifts?

If you are giving away cryptocurrency as a gift to someone who is new to the crypto space, it would be wise to educate the recipient or even provide step-by-step guidance on how to receive crypto.  

While it is an interesting gift, you want to make sure that the gift recipient knows about the risks of owning cryptocurrency and potential tax consequences.  

Any potential cryptocurrency investor should be aware of the fact that the future of a certain crypto asset is uncertain due to market volatility, regulation or politics.  

On the other side, the list of businesses that accept cryptocurrency, at least the most popular ones such as Bitcoin, are growing. This enables users to make more and more everyday purchases using digital money. 

Here is a quick guide in case the recipient is a crypto novice: ‘What is cryptocurrency?’.

Which cryptocurrency would be a good gift?

With more and more cryptocurrencies being created every day it might be a tough job to decide on one – currently, there are more than 14,000 cryptocurrencies in existence. 

Unless you are deep into the crypto world and the person you are giving the gift to has something specific in mind, it might be a good idea to stick with well-known, established crypto assets; especially if you are a crypto novice.  

There has been an influx of new digital assets over the years, but they still have to prove their position on the crypto market and whether they have what it takes to become more established cryptocurrencies. 

Given that crypto assets count as high-risk investments, it is important to educate yourself and review your options before buying. Since we are talking about gifting cryptocurrencies, also consider what the gift recipient might want to get.

How are cryptocurrency gifts taxed?

Similar to gifting someone cash, shares or stocks as a gift, you can gift cryptocurrency. In many countries transferring crypto to someone else equals the disposal of an asset. 

Therefore, it is subject to the taxation laws of a particular country. Even though many crypto laws worldwide come off as similar, there might still be some differences so be prepared to do your own research as well.  

 Let’s check out some general rules regarding gifting crypto being a taxable event.

Do you have to pay taxes on cryptocurrency gifts?

Whether or not you need to pay taxes on gifted cryptocurrency depends on how much cryptocurrency you give. For example, the annual gift tax exemption in the United States for 2022 equaled $16,000. In simple terms, you can give away up to $16,000 of cryptocurrency per recipient without the need to pay taxes. 

If you gift more than $16,000 worth of cryptocurrency to a single recipient during a tax year, it would be recognised as a taxable event and you would be required to pay tax. 

Some other exemptions could be taken into account. For example, in the US you can use the lifetime gift and estate tax exemption to avoid gift taxes as well. As mentioned above in the text, laws may differ from country to country so always examine thoroughly the tax legislation of your state. 

Crypto is taxed much like stocks; short-term gains or gains you made after holding the asset for less than a year, are usually taxed at the same rate as your ordinary income tax while long-term gains may have divergent tax implications.

As stated, most crypto gifts won’t present a taxable event unless you are gifting a broad amount of crypto. 

Tax implications of the gift recipient

Typically, a recipient isn’t taxed when they receive a crypto gift. A taxable event may occur when the recipient sells or otherwise transfers the cryptocurrency in question. 

If this happens, the recipient will need to report that event on their tax return. You should provide the recipient with the necessary documentation for them to know their basis in the gifted crypto asset. 

Therefore, until the recipient decides to sell, cryptocurrency gifts are not taxable events as long as they are less than the annual gift tax exclusion.

As mentioned above, tax implications may differ when it comes to short-term or long-term gains. For example, the US Internal Revenue Service (IRS) currently taxes crypto profits reported within a year as a short-term capital gain. It is taxed as an ordinary income tax. 

However, the situation is different if the person receiving a crypto gift disposes of it after more than a year when it counts as a long-term capital gain.

Capital gains tax and gifting crypto

If you have bought crypto which increased in value – and now you want to gift it to someone else, in many countries it will be subject to CGT. 

Basically, if someone gets crypto and then increases it in value, a lot of jurisdictions could interpret this as a taxable event subject to capital gains tax. With the capital gains tax, the rise in value or gain the cryptocurrency makes is taxed as opposed to the full value at the time of gifting. 

In many countries, you can avoid paying taxes on capital losses. For example, if you have acquired something that decreases in value afterwards and now it is being gifted to someone else, you are considered as making capital loss and exempted from paying taxes.  

A lot of jurisdictions have a form of the capital gains taxes with divergent rates and exemptions. Therefore, be sure to do your own research or consult a professional if you have any doubts about paying taxes.