No. However, if you itemized your deductions, the value of the donation would be your cost of $500, not the appreciated value.
The IRS treats cryptocurrency under the same rules as tangible personal property. You have a taxable gain if you sell it for more than you paid for it, but most users do not have a deductible loss if they sell for less, because taxpayers cannot deduct losses on personal property. (Some bitcoin investors who truly use it as an investment vehicle may be able to deduct losses, although this is so new that it really hasn’t come up in tax court yet. Casual buyers are treated as buying and selling personal property like other collectibles.) Under those rules, you don’t have a taxable event unless you sell the property and realize the gain yourself, but as a donation, the value of the tax deduction is what you paid rather than the value at the time of the donation.
