By: Russell Mindich, HGL Web3 Fellow

Quick and effective fundraising capabilities have become an essential characteristic of successful campaigns. To run robust organizing programs and deliver their message widely, campaigns must use every tool at their disposal to raise as much money as possible in a limited time-frame. 

In pursuit of that goal, some campaigns have begun to accept cryptocurrency donations. Regardless of an individual campaign’s view on the role of cryptocurrencies, it’s clear that a growing percentage of Americans own and use them. According to Pew’s November 2021 Survey, 16% of Americans say they have “invested in, traded, or used cryptocurrency.” That number rises to 31% when looking at those aged 18-29. Pew also found that Asian, Black, and Hispanic adults are more likely than White adults to say they have used cryptocurrency. 

Skewing younger and non-white, cryptocurrency’s early adopters represent highly sought after demographics for the Democratic Party. Some campaigns might be able to bring in more donations from a new cohort of donors. 

Below, we lay out the facts that campaigns should be aware of when considering whether to accept cryptocurrency contributions. Please note that this is informational only and campaigns should consult their own counsel before accepting cryptocurrency donations. 

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FEC Advisory Opinion

The Federal Election Commission (“FEC”) is the federal agency that regulates campaign finance issues for federal campaigns, parties, and PACs. The key FEC precedent regarding accepting cryptocurrency contributions is an Advisory Opinion from 2014. 

What is an FEC Advisory Opinion? An Advisory Opinion is an official statement of law from the FEC issued in response to questions about how federal campaign finance law applies to specific, factual situations. An Advisory Opinion is meant to provide a binding answer to an individual or organization that files a request regarding a specific question that applies to them. Other individuals or organizations who wish to pursue the same activity under the same set of facts and circumstances may rely on an Advisory Opinion for guidance to the extent their facts or situation are not materially different.

In 2014, Make Your Laws PAC asked the FEC if it could accept contributions in Bitcoin, and how they should handle the sale, disbursement, and reporting of Bitcoin contributions. The key issue before the FEC was a dispute about whether it should treat Bitcoin like cash or currency, as a $100 contribution limit applies to such contributions. In order to avoid this issue, the requester changed their request to only seek authorization to take Bitcoin contributions up to $100. 

In response to this specific question, the FEC stated that:

• Campaigns can accept Bitcoin contributions up to $100 per individual. 
  • The FEC could not agree on whether it was permissible to accept contributions over $100 in Bitcoin or other cryptocurrencies.
• Campaigns can hold Bitcoin, and watch it appreciate in value, and then later convert it to U.S. dollars and move the money into their normal bank accounts.
• Transaction fees incurred while converting Bitcoin to U.S. dollars should not be deducted from the reported value of the contribution. 
• Campaigns can purchase Bitcoin for investment purposes. However, campaigns cannot purchase Bitcoin to then make disbursements with that Bitcoin. 
  • Instead, campaigns are instructed to liquidate cryptocurrencies they purchase before using those funds to pay for goods and services.
    • The FEC could not agree on whether campaigns could make disbursements or purchases with donated cryptocurrencies (as opposed to cryptocurrencies they purchased).
• Campaigns must collect the following identifying information for cryptocurrency donors: 
  • Full name, mailing address, employer name and occupation, and date of receipt. 
    • Donors must also affirm that they are not foreign nationals and that they own the contributed Bitcoin (i.e. the Bitcoin was not given to them by someone else for the purpose of making a “straw-man” contribution). 
  • The FEC also gave detailed instructions on how Bitcoin transactions should be reported.
• Additionally, the Advisory Opinion only concerned Bitcoin and not other forms of cryptocurrency.

In the years that followed, and as cryptocurrencies reached the mainstream, campaigns have handled cryptocurrency contributions differently, given the questions left unanswered by the FEC. In the face of the dispute among FEC commissioners regarding whether it is permissible to accept cryptocurrency contributions in amounts over $100, many campaigns have decided to accept such contributions up to the normal, maximum contribution limit (e.g., currently $2,900 for campaigns from an individual) and to accept contributions in cryptocurrencies beyond Bitcoin, including Ethereum, USDC, and Solana.

The Bottom Line: The FEC has not publicly stated that campaigns can accept cryptocurrency donations in excess of $100 per individual, nor that campaigns are allowed to accept cryptocurrencies aside from Bitcoin. Considering the potential benefits of accepting cryptocurrency donations and the legal gray area that persists on this question, campaigns should make their own risk assessments and consult with counsel until there is additional regulatory clarity.

Baseline Questions for Campaigns 

• Do my target demographics hold cryptocurrency?
• Would I benefit from accepting cryptocurrency donations this cycle?
• Is someone on my staff well-positioned to manage this process, including soliciting, processing, liquidating, and reporting cryptocurrency donations? 

Best Practices (& Flags) for Campaigns Accepting Cryptocurrency Donations

• Most campaigns use Bitpay to accept and process cryptocurrency donations.
• Similar to campaign donations of stocks or works of art, campaigns may hold cryptocurrency donations and reap the benefits of its appreciation. 
  • Contribution limits apply to the value of the cryptocurrency at the point-of-donation, rather than at the point-of-liquidation. 
• Campaigns will incur a processing fee when converting cryptocurrency donations to U.S. dollars, which amounts to 0.5%-2% depending on the size of the transaction. As noted above, these transaction fees may not be deducted from the reported value of the contribution.
• Campaigns must incorporate proper citizenship and other compliance verification walls on their cryptocurrency donation pages to ensure that they are complying with FEC source restrictions, contribution limits, and reporting practices. 
• Crypto donors must be aware that long-term capital gains donated to campaigns are not tax deductible. Campaigns should promote proper donor education here to mitigate headline risk.