Charities favored by cryptophilanthropists are assessing the fallout from a scandal that reinforces skepticism about marrying the alternative currency and charitable giving.
FTX — a high-profile cryptocurrency exchange, thanks to marketing and ads with celebrities like model Gisele Bündchen — filed for bankruptcy on Friday amid allegations of fraud against Sam Bankman-Fried, its philanthropist founder. Bankman-Fried, a champion of the philanthropic strategy known as “effective altruism,” had signed the Giving Pledge just a few months earlier, promising to give away the bulk of what was then his $21 billion fortune. Yet his wealth and the company’s value vanished virtually overnight, according to Bloomberg and other business-news outlets.
The FTX turmoil undercuts the relatively new effective-altruism movement, which champions using data analysis to direct philanthropy toward the biggest possible impact. It appears that the company’s foundation will not be able to make millions in grants pledged to nonprofits, and Bankman-Fried’s philanthropic advisers are worrying publicly that the goodwill generated by his giving may have helped launder fraud.
More broadly, the scandal gives a black eye to cryptophilanthropy and presents a PR challenge for the thousands of nonprofits that raise money from those who own the alternative cash. “This isn’t a positive for anybody in the crypto space,” said Robbie Heeger, CEO of Endaoment, a nonprofit donor-advised fund for crypto donors. “It really hurts the broader image of cryptophilanthropy because Sam was such a dedicated philanthropist.”
The FTX collapse and fraud allegations confirm for skeptics an unsavory narrative about cryptocurrency, said Rhodri Davies, a philanthropy scholar who wrote about the scandal for Alliance magazine, saying: “Is the writing on the wall for cryptophilanthropy?”
Critics of cryptocurrency describe it as a Ponzi scheme with early investors hyping the cash alternative to drive up prices of their asset. “There’s always been this nagging sense with crypto that some of this might be a little bit sketchy,” Davies, founder of the Why Philanthropy Matters website, said in an interview. “This is the sort of story that might make board members or trustees say, ‘I don’t understand this stuff, but I know enough to know that I don’t want anything to do with it.’”
Perhaps worse, fallout from the FTX collapse roiled the cryptocurrency markets and deepened declines in the value of most coins. A bear market known as “crypto winter” set in earlier this year and is now expected to drag on for some time.
“The future for cryptocurrencies of all kinds looks pretty bleak,” declared the Verge, a technology news outlet, describing “existential threats.”
‘One Bad Actor’
Crypto enthusiasts decry the alleged fraud and the savings that investors lost in the collapse. But they argue that FTX is just a wayward piece of a large and promising industry that, through blockchain technology, will prove more transparent than traditional monetary systems.
“This is one bad actor,” said Alex Wilson, co-founder of the Giving Block, a company that helps nonprofits create cryptofundraising programs and convert digital-cash gifts to standard currency. “This is a failure of one entity and not of crypto itself.”
Heeger of Endaoment said that Bankman-Fried’s alleged fraud couldn’t have happened if FTX had embraced the transparency and decentralization typical of most crypto ventures, including his charity. “I want to underscore that this is exactly the kind of consumer manipulation and fraud that crypto was designed to combat,” he added.
Some 2,000 nonprofits accept cryptodonations through the Giving Block platform, including the American Heart Association, the Institute for Justice, San Diego’s Institute of Contemporary Art, the March of Dimes, and Save the Children. Some organizations do little more than include the digital-cash option on their donation page. Others court crypto donors through Twitter — the social-media channel where enthusiasts gravitate — and dedicated programs.
Several charities said the FTX imbroglio and collateral damage don’t directly affect them and won’t derail their crypto fundraising programs. Many of these efforts are relatively new and don’t produce sizable revenue. Groups also typically don’t hold crypto to avoid exposure to the sometimes violent swings in the value. Giving Block, for example, converts crypto gifts to cash, which it then passes to the charity.
“We think that cryptocurrency is here to stay,” said Rebecca Milner, chief advancement officer for International Medical Corps, which has run a small cryptofundraising program for about three years. “We want to be in the mix if donors want to make a donation of cryptocurrency.”
Kaboom, which aims to provide equity in children’s play spaces, began accepting donations of crypto about a year ago, in part to connect with the young parents who are most likely to care about its mission. Market research suggests that as many as 94 percent of crypto buyers are millennials or members of Generation Z. A Fidelity Charitable survey found that one-third of its millennial account holders invest in digital cash.
The Kaboom effort is small; the organization raises all but 1 percent of its support from institutional donors and major philanthropists, and crypto donors are a fraction of that share. But the organization sees it as a way to stay abreast of the opportunities and challenges of new technologies. “We take the long view on this,” said James Siegal, former Kaboom CEO and now a senior fellow. “Technology has huge potential to disrupt philanthropy and how we go about achieving impact.”
The crypto market is still in its infancy — the first Bitcoin was sold a little more than a decade ago — and Siegal believes “rational, reasonable regulation” should soon make it easier to detect and weed out bad actors.
Heifer International has made one of the biggest bets on cryptophilanthropy. It recently acquired the assets of the BitGive Foundation, a nonprofit that connected Bitcoin holders with charities, and is redesigning the foundation’s GiveTrack, a Bitcoin crowdfunding platform.
“We’re still moving forward with developing the strategy and road map for what GiveTrack looks like,” said Harper Grubbs, Heifer’s senior director of digital marketing. “What all of this calls for is greater transparency.”
Grubbs notes that the stock market crashes every few years but inevitably rebounds and rises again. “I don’t think this is the end of crypto, by any means. Hopefully people learn from this about what the industry can do to prevent it from happening again.”
Record Highs, Then Freefall
The FTX debacle comes almost exactly a year after surges in cryptocurrencies and cryptophilanthropy hit new highs. Values for many of the digital currencies set records in November 2021, and Fidelity Charitable account holders were closing a year in which they donated $331 million in digital assets — a nearly 12-fold increase over the $28 million donated in 2020.
The opening of the Ukraine war in February 2022 also saw a rush of cryptophilanthropy to support that country’s defense and relief organizations.
But digital-coin values plummeted in the face of inflation, rising interest rates, and the implosion of some key players in the field. The value of a single Bitcoin, which had reached a high of nearly $68,000 in November 2021, eroded throughout 2022 and dropped below $16,000 this week when news of the FTX implosion broke.
This year also saw Greenpeace — which once accepted Bitcoin — and other groups launch a campaign against the currency, charging that electricity-intensive computer mining of the coin is an environmental threat.
Even before the FTX scandal, some nonprofits concluded that cryptocurrency was dodgy. “The space has overwhelmingly become an opportunity for self-enrichment at the expense of others and the environment,” wrote software engineer and Wikipedia editor Molly White, whose anti-crypto campaign within the Wikimedia Foundation community led the organization to stop accepting digital assets.
Plenty of individuals at nonprofits feel similarly, said Davies of Why Philanthropy Matters. “I suspect there are more organizations that have sort of quietly wound down any interest they’ve had in crypto and haven’t really made much noise about it.”
Giving Block, however, said it has more than doubled its client base in 2022 to more than 2,000. “What we saw last week at FTX with such large-scale fraud is disappointing,” said co-founder Wilson. “But ultimately, it doesn’t change our viewpoint on where cryptophilanthropy is heading.”
