Should Your Nonprofit Accept Crypto Donations?
In 2018, the Pineapple Fund donated Bitcoin grants worth $55 million to 50 nonprofit organizations. Since then, more donors have expressed interest in donating cryptocurrency to the charities they wish to support.
This raises the question: Is it smart for your nonprofit to accept cryptocurrency donations? To determine the answer, you must first understand this unique form of currency and the potential benefits and risks of accepting it.
Pros and Cons of Accepting Cryptocurrency
The biggest benefit of accepting Bitcoin, Etherium, and other cryptocurrencies is that it may expand your donor base. Given the growing popularity and acceptance of cryptocurrency in the marketplace, particularly among many younger and technologically savvy donors, this could be incredibly important. According to Pew Research, the majority of cryptocurrency users are males between 25 and 44 years of age.
Research has also found that cryptocurrency donors tend to be more philanthropic than traditional donors. According to one study, however, nearly half of crypto owners say it’s currently difficult to find nonprofits willing to accept their donations.
Cryptocurrency donations can be especially valuable to donors if there is a large unrealized capital gain, as donors do not have to recognize the gain upon making a donation. Similar to marketable securities, donors can deduct the full fair-market value of cryptocurrency at the time of donation if the asset was held for longer than one year.
But there are significant risks involved in accepting cryptocurrency. For starters, crypto is a largely unregulated and highly volatile asset class. Fraud is widespread and there is little if any recourse if cryptocurrency is hacked. Since crypto is designed to be held anonymously, it can be hard to prove that assets originated from a legitimate source.
How to Accept Cryptocurrency Donations
There are several safe ways to accept cryptocurrency donations. By accepting donations via an intermediary, such as a donor-advised fund (DAF), you won’t take custody of the assets. This reduces legal, accounting, administrative, and tax-filing responsibilities. The intermediary will handle IRS form filings (specifically Form 8283), tax receipts, and cash conversion, as well as ensure that all crypto regulations are followed.
If you choose to receive the assets directly, here are a few ways to do so:
- Use a cryptocurrency donation processor or gateway. Specialized payment processors such as Giving Block and BitPay can accept crypto donations on your behalf and automate receipts and cash conversion into a crypto wallet. This way, you can hold on to the cryptocurrency as an investment if you choose. Service fees vary among processors.
- Use a cryptocurrency exchange. These exchanges allow you to embed the crypto donation and checkout experience onto your own website. Similar to donation processors, crypto exchanges also provide automatic conversion of cryptocurrency to cash.
- Use your own crypto wallet. This “do-it-yourself” option requires some technical expertise to choose the best crypto wallet and monitor the crypto transactions. Popular crypto wallets include Coinbase, Binance, Gemini, and MetaMask. Plan to create a process for collecting donor information since blockchain transactions are usually anonymous, along with strict policies governing access to the digital wallet.
Decisions and Considerations
Once you receive cryptocurrency donations, you must decide whether to hold the asset as cryptocurrency or convert it to cash. This process is similar to receiving marketable securities like stocks and bonds. Given the high volatility of cryptocurrency, it’s generally recommended that nonprofits convert crypto to liquid cash as soon as possible to lower risk. Crypto gateways and exchanges can convert assets to cash automatically.
If you decide to accept crypto donations, it’s important to amend your gift acceptance policy to reflect this. Keep your policy simple yet broad so you can easily adapt it to the ever-changing cryptocurrency landscape. To increase flexibility, your policy should not entail a blanket acceptance of all crypto donations. For example, your policy could state:
“XYZ Nonprofit Organization may accept cryptocurrency donations. When appropriate, such donations will be approved by the Executive Committee.”
Is It Right for Your Organization?
Accepting cryptocurrency donations may not be feasible for every nonprofit, but it’s worth investigating given the growing awareness and popularity of digital currency. Talk to your executive committee and board of directors about whether accepting crypto is a smart move for your organization.
