By Emilie Thell, CPA, Manager, Assurance & Advisory
Following the onset of the COVID-19 pandemic, contributions to nonprofits have continued to reach record levels year-over-year. Considering the increasing popularity of crypto, it’s not surprising that nonprofits are seeing an increase in crypto contributions as well.
Fidelity Charitable reports they accepted more than $330 million in contributed crypto for philanthropic giving in 2021, up from $28 million in 2020, and crypto accounted for 66% of their contributions during the year. The Giving Block reports accepting almost $70 million in contributed crypto in 2021 compared to just $4 million in 2020.
Given the volatility of crypto, it’s uncertain what the future of crypto contributions will look like. Factors such as changing economic conditions and potential changes in the regulatory environment could affect donors’ decisions on whether or not they continue investing in and donating crypto in the future. For the time being, it is something nonprofits should be prepared for.
What Is the Best Approach to Creating a Gift Acceptance Policy With Crypto in Mind?
A nonprofit’s gift acceptance policy should establish whether or not contributions in the form of crypto will be accepted. In making this decision, a nonprofit should consider their donor base – is your nonprofit’s cause one that aligns well with the interests of donors who transact frequently in crypto? Are your donors tech-savvy organizations or individuals with the capacity to contribute large amounts of crypto? Do you want to hold crypto fundraising events to attract a larger donor base?
If your nonprofit does wish to accept crypto contributions, you should also consider whether the crypto will be liquidated, held and sold over an extended period of time, or held and used to conduct transactions. This may in part depend on your nonprofit’s appetite for risk and how your nonprofit is going to use that contribution. Most nonprofits choose to immediately liquidate any crypto contributions, but if your nonprofit chooses to hold it, you should consider whether your staff has the capacity to manage crypto and what internal control processes and procedures you will need to have in place.
Making these decisions early on is important, as it can take weeks to set up accounts designed to accept crypto and the market for crypto is highly volatile. Even just taking a day or two to decide what to do with a crypto contribution can significantly impact the value of the contribution.
How Should Crypto Contributions Be Accepted?
Once you decide your nonprofit will accept crypto contributions and whether you’ll liquidate it or hold it, you’ll need to consider how you will accept crypto.
A third-party processor, such as Fidelity Charitable or The Giving Block, can simplify the process by converting the crypto to cash before transmitting it and may be ideal for smaller nonprofits that have less experience with crypto, or nonprofits that don’t expect to receive a lot of crypto contributions. One thing to consider is that processing fees for this service can range from 1% to 5%.
Alternatively, your nonprofit can create its own digital wallet, with institutions such as Coinbase or Gemini, and accept crypto contributions directly in an effort to reduce fees. This might be a better option if your nonprofit expects to receive a high volume of crypto contributions and you have staff that is knowledgeable in navigating crypto.
Another option is partnering with a donor advised fund, such as Fidelity Charitable or Schwab Charitable, to accept crypto contributions on behalf of your nonprofit. These partners can assist with liquidating the contributions or guiding nonprofit staff in facilitating crypto transactions, but also require processing fees.
And lastly, if your organization decides to hold the cryptocurrency, your accounting team will need to understand the unique accounting implications of recording and measuring such assets. Please reach out to our team of experienced accountants in our Nonprofit Group that can advise you on the proper accounting