The cryptocurrency market is booming, and not-for-profits are taking notice. Though a highly volatile, unregulated currency (for now), crypto is the newest option for gifts (gift card donations are also on the rise). Some not-for-profits have already set up processes to accept crypto donations while others are waiting and watching. There are several reasons why accepting crypto donations is a smart strategy, though it is not without its risks.

Benefits of Accepting Cryptocurrency Donations

Cryptocurrency can be a seamless, efficient way to accept money for a not-for-profit (NFP) organization. Entities like the University of Pennsylvania and global NFPs like UNICEF are among the industry pioneers in this space. Both have created systems and policies to accept crypto with the expectation that a few donations now will turn into a major form of fundraising later.

There is reason to believe this will happen eventually. Take donor-advised funds (DAF), for example. Fidelity Charitable, the largest DAF in the U.S., has seen dramatic spikes in crypto donations since 2019.

Cryptocurrency can be more convenient, streamlined, and trackable than donations of cash or property. Especially for multinational NFPs, it’s often easier to accept cryptocurrency, which is the same denomination worldwide, and then convert it into local currency depending on where it’s used. This also saves money on wire transfer fees.

The value is also easy to figure out, and donors can use it as a strategy to avoid paying any capital gains taxes on the amount. Donations are immediately available, too.

Potential Risks of Cryptocurrency Gifts

One of the biggest downsides is the volatility. A donation of $1 million in Bitcoin today could be worth something different next week or next year. This is part of the reason some potential cryptocurrency donors may want to hold onto their money; if its value substantially increases in the future, the organization benefits, not the donor.

Despite the potential for bigger future gains, NFPs will need to decide if they want to liquidate all or a part of the donation immediately. It would be wise to develop or amend gift policies to include whether to accept cryptocurrency. Additionally, the policy may need to include terms that when a donor commits to donating cryptocurrency, he or she agrees to guarantee a specific amount regardless of how much the value goes up or down beforehand.

There is also the issue of sustainability and environmental concerns that may be a factor for some organizations. The process of mining cryptocurrency requires extensive server space and electricity usage, but it’s getting better. As of July 2021, global Bitcoin electricity usage was down to about 0.33 percent of worldwide totals, or 70 terawatt hours. When Bitcoin is mined on newer, more efficient equipment, that also cuts down on energy use.

Some smaller NFPs may lack the digital infrastructure to accept and store cryptocurrency securely. There are resources to help with this, though.

Tax Regulations

Cryptocurrency is like other appreciable asset when it comes to taxes. NFPs treat the donation like a stock donation for both book and tax purposes. And like securities and other property subject to capital gains, charitable gifts of cryptocurrency aren’t taxable to the organization. The organization isn’t responsible for valuing the donation, though it may need to sign a Form 8283 for cryptocurrency gifts more than $5,000.

The amount of the tax deduction will vary depending on how long the donor has held it. If held for less than a year, the contribution is equal to the lesser of the donor’s basis or fair market value. If held for more than a year, the tax deduction is equal to the fair market value at the time the crypto is donated. Donors must know and report this value on their tax return.

Though cryptocurrency is not heavily regulated now, that will probably change in the future. The Securities and Exchange Commission (SEC) has put increased emphasis in this area, as has Congress. It was widely expected that some form of cryptocurrency regulation would be included in the massive infrastructure bill. But the bill’s final version did not include any other tax regulations, which some believe is because a more comprehensive regulatory shift is on the way.

Guidance for Accepting Cryptocurrency Donations

Once an NFP decides to set up a crypto platform, there are steps the CFO and other leaders can take to make the process smoother and more secure.

Develop a gift policy or decide how to amend the current gift policy – for example, if the donation will be kept in its original form or converted into currency, and the timing of that transaction. Then set up a digital wallet and evaluate the donation platform to accept cryptocurrency gifts. BitPay is one of the more popular platforms for the nonprofit world. Engiven is another option.

Other tips include:

  • Creating a reference guide to help users understand the process of donating cryptocurrency.
  • Developing a cryptocurrency application form to properly vet potential donors.
  • Speaking with other NFPs that already accept cryptocurrency to gain insights.

It is up to the organization and its Board of Directors to decide whether to accept cryptocurrency donations. While it can open new opportunities for fundraising, working with cryptocurrency presents unique challenges that NFPs should be aware of. Not-for-profit leaders and Board members will need to familiarize themselves with changing tax regulations, update their gift policy, and proactively engage their tax advisor as they begin their cryptocurrency journey.

For questions about using cryptocurrency in your not-for-profit organization, contact the Not-for-Profit Team at PBMares.