In a rapidly changing environment for not-for-profit fundraising, a 2018 donation may have portended a significant change for the future. A previously-unknown and anonymously-managed nonprofit called The Pineapple Fund made grants of Bitcoin totaling $55 million to 50 not-for-profit organizations. Since then, a new generation of donors have been asking their favorite charities about accepting cryptocurrency. In fact, a 2022 report by the Dorothy A. Johnson Center for Philanthropy noted that the number one trend in philanthropy is the donation of cryptocurrency.

As organizations consider accepting these contributions, they should fully understand the potential benefits and risks.

Pros and Cons of Accepting Cryptocurrency

The biggest benefit of accepting Bitcoin, Etherium, and other cryptocurrencies is that it could expand your donor base. Given the growing popularity and acceptance of cryptocurrency in the marketplace, particularly among younger and technologically-savvy donors, this could be incredibly important.

Research has found that cryptocurrency donors tend to be more philanthropic than traditional donors. According to Pew Research, the majority of cryptocurrency users are males between 25 and 44 years of age – appropriate potential donors for many organizations. But according to one study, 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 they held the asset for longer than one year.

At the same time, there are significant risks in accepting cryptocurrency. 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 the assets originated from a legitimate source.

How to Accept Cryptocurrency Donations

There are several safe ways that a not-for-profit organization can 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 an organization chooses to receive the assets directly, here are a few ways to do so:

1. 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. Service fees vary among processors.
2. 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.
3. 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 a cryptocurrency donation, 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 in order 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 the policy simple yet broad so you can easily adapt it to the ever-changing cryptocurrency landscape. For flexibility, your policy should not include 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.”

Fully understanding digital currency and carefully exploring if your organization is ready to accept these donations can help avoid potential risks while reaping the benefit of an increased donor base and more contributions.