Cryptocurrency isn’t just about investing.
Crypto enthusiasts are using bitcoin and other digital assets to buy NFTs and artwork, swap tokens with friends and purchase real-world goods.
That’s because cryptocurrency is more than just a speculative asset — it’s also a disruptive technology.
As digital currency becomes more accessible and widespread, the average investor has more ways than ever before to use digital assets outside their portfolios.
A recent survey by The Penny Hoarder, conducted in partnership with The Kim Komando Show, found that:
- 34% of cryptocurrency investors have used it to buy an NFT.
- 74% have given crypto as a gift or plan to.
Using Cryptocurrency to Purchase NFTs
Non-fungible tokens are digital representations of real-world objects like art, music, videos, sports cards or even concert tickets. You need cryptocurrency and a crypto wallet to purchase NFTs.
They’re popular among artists and collectors because of their ironclad record of ownership: Each NFT is a unique string of data on the blockchain that can’t be replicated. And each time an NFT creation is sold on a marketplace to someone else, the original creator gets a cut.
Vincent Zuniaga, a full-time artist in Orlando, started creating NFTs in November 2021.
He was tasked to help Saatchi Art, an online art marketplace, create a curated NFT project called The Other Avatars.
It wasn’t long before he saw the unique value of NFTs for both artists and collectors. Works featured in the NFT gallery — which went for $300 and up — sold out in just a couple hours, Zuniaga said.
He and other artists made good money, and Zuniaga has since gone on to incorporate digital tokens into other creative projects on VincentZ Photography, like raising money for manatee conservation.
“My ‘Buy an NFT, Save a Manatee’ series is doing really well,” he said. “Even if people don’t know much about NFTs, they like the idea of buying art to support a cause.”
The lure of authenticity and control is drawing more people to the world of NFTs.
According to The Penny Hoarder’s survey, 34% of cryptocurrency investors have bought an NFT.
NFTs can only be purchased using cryptocurrency, usually ethereum. Purchasers also need a crypto wallet to buy and store their tokens.
While Zuniaga is excited about the future of NFTs in art, he argued that it’s still an obscure concept for most people outside the cryptocurrency world.
“People go, ‘Wait, I need to get a crypto wallet to view this artwork? How does that work?’” Zuniaga said. “For people who don’t already use crypto, there’s still a big knowledge gap there.”
Gifting Crypto
Gifting digital assets to friends and family is also popular among cryptocurrency investors.
About 1 in 3 crypto investors — 33% — said they’ve given cryptocurrency as a gift, according to The Penny Hoarder’s survey. Another 41% of respondents said they plan to gift cryptocurrency in the future.
Two popular ways to give digital assets are through gift cards that can be redeemed for crypto or by directly transferring assets from one crypto wallet to another on an exchange.
Some platforms — such as Robinhood and Cash App — also have gifting features that make it relatively easy to swap a handful of tokens with other users.
Sharing the wealth is great, but experts say recipients need to be aware of potential tax implications.
Someone can gift up to $16,000 per person per year in crypto with no tax consequences, according to Cody Lachner, a certified financial planner at BBK Wealth Management.
But if you turn around and sell that gift, it’s a taxable event. Figuring out the cost basis can be complicated.
“When they choose to sell the crypto in the future, their gain or loss will be dependent on their selling price and the value of the crypto at the time it was gifted to them,” Lachner said.
Cryptocurrency as a Mainstream Form of Payment
Cryptocurrency isn’t a widely accepted form of payment in the U.S., but consumers are finding ways to use digital assets to buy goods and services.
Over half of all surveyed cryptocurrency investors — 54% — said they’ve made a purchase using crypto.
More companies are accepting bitcoin as payment, from local businesses to major retailers like Microsoft, AT&T, Expedia and Shopify.
Consumers can also sign up for crypto-based debit cards — like the one Mastercard debuted in partnership with Bitpay in June 2021 — to make everyday purchases.
PayPal also allows customers with cryptocurrency holdings on its platform to pay for goods at millions of online merchants using its “Checkout with Crypto” feature launched in 2021.
In the case of debit cards and PayPal, a user’s cryptocurrency holdings are converted behind the scenes into fiat currency, which is then used to pay the merchant.
But buying stuff with bitcoin is usually a lousy idea, according to experts.
“Most people aren’t using cryptocurrency for everyday purchases for the same reason most people aren’t using gold for everyday purchases,” said Erik Goodge, a certified financial planner at uVest Advisory Group.
A widely held investment thesis for bitcoin is as a long-term store of value, like gold or diamonds.
Enthusiasts believe bitcoin’s scarcity — only 21 million bitcoin will ever be mined — will increase the cryptocurrency’s value over time.
Just like you wouldn’t pay for an Amazon purchase with a piece of stock from your 401(k), it doesn’t yet make sense to use bitcoin for standard transactions if you expect its value to increase substantially in the future.
“It’s just not super convenient at the moment,” Goodge said.
Another big drawback? Taxes.
The IRS views crypto as an asset, not a currency. Each time someone uses cryptocurrency to pay for goods, it’s a taxable event in the eyes of the federal government.
“You’re basically getting double taxed,” said Thomas Kopelman, a financial planner and co-founder of AllStreet Wealth. “You’re paying sales tax at the time of purchase, then capital gains tax that needs to be reported at tax time.”
Consumers are responsible for keeping track of these taxable events. Unlike traditional stock brokers, cryptocurrency brokers and exchanges aren’t required to send users any tax document summarizing trades.
“Make sure you go back through your transaction history and figure out what those gains and losses were,” said Lance Elrod, a certified financial planner at Next Step Financial Transitions. “If you’re frequently using crypto to make purchases, figuring this out can become a daunting task very quickly.”
Despite these challenges, crypto investors remain optimistic: 58% of survey respondents said they expect cryptocurrency to become a mainstream form of payment in the next decade.
Rachel Christian is a Certified Educator in Personal Finance and a senior writer for The Penny Hoarder.
About the Survey
The Penny Hoarder partnered with Pollfish to conduct a random national survey March 15-18, 2022.
Pollfish screened respondents by asking how often a respondent invests in cryptocurrency: 4,322 people responded to the screening question with 2,003 people who occasionally or regularly invested in cryptocurrency advancing to the survey.
Responses were weighted for age and gender so that each response is representative of the U.S. population, reducing the total respondents to 2,001.
The Penny Hoarder conducted statistical testing using weighted and unweighted data to confirm that weighting does not change the survey’s overall results. The overall survey’s margin of error is +-2% at a 95% confidence interval.
This was originally published on The Penny Hoarder, which helps millions of readers worldwide earn and save money by sharing unique job opportunities, personal stories, freebies and more. The Inc. 5000 ranked The Penny Hoarder as the fastest-growing private media company in the U.S. in 2017.
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