A new study released this week from a collective of four American business scholars highlights the potential opportunities and risks donors and charities face when dealing with cryptocurrency donations.
The “gambler’s fallacy”
In particular, the paper explores how cryptocurrency donors often fall victim to the “gambler’s fallacy,” a false belief that estimates if a certain event has occurred more frequently in the past, it is less likely to happen in the future (and vice versa). Essentially, the “gambler’s fallacy” relies on the idea that past outcomes may indicate the probability of future outcomes, despite the two being wholly separate from one another.
For instance, the researchers found that “participants are more likely to be activated to donate when they have experienced recent declines in asset value,” believing “that the market will increase going forward” following these declines.
How urgency impacts donation appeals
The researchers found that participants’ reliance on the “gambler’s fallacy” is “amplified when they face urgent donation appeals.”
“Holders of cryptocurrency are quite familiar with the urgency-based trading, as they seek to avoid missing out on short-term gains that may expire suddenly due to the unpredictable nature of cryptocurrencies,” the paper reads in part.
The scholars argue that charitable organizations accepting cryptocurrency donations may benefit from timing appeals with the flow of the market in order to maximize donations.
“Accordingly, charitable organizations should consider integrating an urgency framing in their cryptocurrency donation appeals,” the research claims.
A crypto philanthropy boom
Combining research from scholars at Boston University, Indiana University, the University of Colorado at Boulder, and the University of New Mexico, the study is the first of its kind and explores the intersection of “investor behavior, donor behavior, and urgency appeals.” The business scholars hope that future studies can use their work as a “building block” for future research.
“Regulators, policymakers, and fundraisers should develop a clear grasp of factors that influence cryptocurrency donations,” they argue.
According to a recent cryptocurrency philanthropy company, The Giving Block, found that the average crypto donation was over 31 times larger than the average online gift size in the nonprofit sector.
Since its founding in 2018, The Giving Block has processed over $125 million in donations. The company projects to surpass over $1 billion in donations by the year 2027.
“As more people in crypto become educated about the tax incentives each year, the donor community will continue to grow,” reads The Giving Block’s 2023 Annual Report on Crypto Philanthropy.