A new study released this week by a collective of four American business scholars sheds light on the potential opportunities and risks that donors and charities face when dealing with cryptocurrency donations.
The “Gambler’s Fallacy” and Cryptocurrency Donors
In particular, the study delves into how cryptocurrency donors often fall prey to the “gambler’s fallacy,” a false belief that if a certain event has occurred more frequently in the past, it is less likely to happen in the future (and vice versa). Essentially, this fallacy relies on the idea that past outcomes may indicate the probability of future outcomes, despite the two being completely separate from each other.
“Participants are more likely to be activated to donate when they have experienced recent declines in asset value,” said the researchers. They believe “that the market will increase going forward” following these declines.
The researchers found that participants’ reliance on the “gambler’s fallacy” is further amplified when they face urgent donation appeals. Holders of cryptocurrency are well acquainted with this urgency-based trading as they seek to avoid missing out on short-term gains, given the unpredictable nature of cryptocurrencies.
“Accordingly, charitable organizations should consider integrating an urgency framing in their cryptocurrency donation appeals,” suggested the research.
Implications for Charitable Organizations
The study, which combines research from scholars at Boston University, Indiana University, the University of Colorado at Boulder, and the University of New Mexico, explores the intersection of investor behavior, donor behavior, and urgency appeals. The scholars hope that this research can serve as a foundation for future studies in this area.
“Regulators, policymakers, and fundraisers should develop a clear grasp of factors that influence cryptocurrency donations,” stated the researchers.
According to cryptocurrency philanthropy company The Giving Block, the average crypto donation is over 31 times larger than the average online gift size in the nonprofit sector. Since its establishment in 2018, The Giving Block has processed over $125 million in donations. The company projects that donations will exceed $1 billion by 2027.
“As more people in crypto become educated about the tax incentives each year, the donor community will continue to grow,” stated The Giving Block’s 2023 Annual Report on Crypto Philanthropy.
