Political Figures Accepting Crypto Donations: Understanding the Benefits and Regulatory Challenges

By Dan Hoover

Former President Donald Trump’s presidential campaign recently announced it would begin accepting political contributions made with certain cryptocurrencies through a Coinbase affiliate, stating that it was “in solidarity with opponents of socialistic government control over U.S. financial markets.” Although the former President is not the first candidate to accept crypto donations in this election — the first being independent candidate Robert F. Kennedy, Jr. — his campaign’s move in doing so is clearly a rallying cry for support from those in the crypto sector.

However, this begs a few questions. Are people legally allowed to donate cryptocurrency to political campaigns? What about corporations? And what are the tax implications of donating cryptocurrency as a political contribution? Given the number of questions this prospect raises, one might even wonder whether donating cryptocurrency is worth it. 

Understanding the legality of crypto political campaign contributions

Those considering the idea of cryptocurrency as a political contribution must understand the unique legal landscape of crypto regulation. A lot can change in four years, especially when it comes to a technology that is evolving as rapidly as cryptocurrency. When you combine an uncertain regulatory landscape with something as high-stakes and heavily policed as political campaign donations, it leaves you with a complex web of legality to navigate. 

The Federal Election Commission (FEC) — the body in charge of governing campaign donations for Congress and the presidency — issued an advisory in 2014 that allowed political action committees (PACs) and individual political candidates to accept contributions in Bitcoin,  while also prohibiting the use of cryptocurrency to pay for campaign expenditures. Although the FEC’s advisory applies specifically to Bitcoin, it’s generally accepted that the same principles would apply to other cryptocurrencies and digital assets that have emerged and gained popularity in more recent years, such as Ethereum, Tether, Solana, and several others.

However, at the state level, the ability of political candidates to accept donations in the form of cryptocurrency is quite complicated. For example, California requires any cryptocurrency-based political donation to be verified with know-your-customer (KYC) procedures and “made and received through a U.S.-based cryptocurrency payment processor registered with the U.S. Department of Treasury.” Washington state caps crypto contributions at $100, requires them to be converted to fiat currency within five business days, and prohibits the use of crypto for purchasing products or services. Some states — notably Michigan, North Carolina, and Oregon — even outright ban campaign contributions via cryptocurrency. Both donors and candidates must pay close attention to these regulations to ensure compliance.

The advantages (and disadvantages) of political campaign contributions via crypto

Part of the reason cryptocurrency in political contributions has become such a contentious issue is that it highlights the crypto sector’s increasing influence in this election cycle. It’s well-known that large corporations attempt to influence policy decisions by making political donations, and it should come as no surprise that crypto companies are no exception to this rule. A report published this past May by Bloomberg shows that crypto industry donors have made contributions of $94 million to federal political action committees (“PACs”) since 2023 — already topping the total amount that was contributed during the entire 2020 election cycle by the industry.

Considering how contentious and partisan of an issue the regulation of cryptocurrency has become, it stands to reason that crypto companies are looking to support candidates whose positions are in their best interests. This has resulted in a significant sum of money flowing into the House and Senate races from the crypto industry.

That being said, outside of the crypto industry itself, individual investors may have advantages when donating their funds via cryptocurrency. For example, there have been several reports of people losing access to the traditional financial system due to their connection with cryptocurrency. In other words, banks have been “de-platforming” their clients for engaging in any crypto transactions. By being able to support their candidate with crypto, rather than having to convert it into cash first, they reduce the risk of losing access to the bank accounts they use to pay their bills.

Donors who wish to donate cryptocurrency to a campaign must also consider potential tax consequences. Under U.S. law, donations to political campaigns are not tax-deductible. By contributing cryptocurrency to a campaign (instead of after-tax cash), the donor would likely have capital gains taxes due as a sale of property, much like how a donation of stock, valuable artwork, or other property would be taxed.

Ultimately, the implications of political candidates accepting cryptocurrency for campaign contributions are primarily for corporations in the crypto sector. For the average consumer investor, the main benefit of donating cryptocurrency rather than cash to a political campaign would be the security it offers. You are still liable for the taxes of the sale, and you are subject to the same campaign finance laws as cash contributions. However, as long as you live in a jurisdiction that does not prohibit the practice, donating cryptocurrency instead of cash may be another way to realize value from your cryptocurrency holdings while minimizing the risks of interacting with a set of inconsistent traditional bank policies.

Author Bio

— Dan Hoover serves as the Chief Operating Officer and Chief Compliance Officer at Castle Funds, showcasing a history of solving problems in the asset management field. He applies an extensive knowledge of market standards and regulatory requirements to create investment products unqiuely positioned in the digital asset markets.