How Can Nonprofits Benefit from the Rise of Cryptocurrency?
Many nonprofits won’t think about accepting gifts in the form of cryptocurrency until a donor attempts to make a gift of Bitcoin, Ethereum, Litecoin, or any other one of the several thousand current cryptocurrencies available to investors. For many, this offer of cryptocurrency can be a bit of a shock. Some immediately refuse that form of gift because of its complexity and others for its risk. Some nonprofits will kick themselves for not being prepared as they realize how valuable cryptocurrency can be, and some will just not know what to do. For any of those reasons, we decided to craft a blog introducing nonprofits to the idea of accepting cryptocurrency gifts in hopes that organizations will take interest and pursue this modern form of donation.
For the nonprofits that are on the fence about the viability of this method of fundraising, we find it important to look at the numbers. The market cap for the top 10 cryptocurrencies exceeds $3 trillion and there are over 8,000 cryptocurrencies in existence today. There are also over 300 million active cryptocurrency users worldwide with roughly 27 million of those residing in the U.S. Looking to the preeminent example, Bitcoin, investors have seen a roughly 540,000% increase since 2012 and a 274% growth rate in 2020 alone.
To explain what cryptocurrency is briefly, it is a digital exchange medium that can be used for purchasing or selling value. Sounds like digital dollars, right? Close but not quite. The primary difference between dollars and cryptocurrencies is that cryptocurrencies are not backed by the government and are not recognized as the legal currency by any U.S. jurisdiction. That said, it is still a legal way to transfer value. Cryptocurrency is designated as property/commodities by the US Treasury and regulated by the SEC. Some businesses have begun to accept it as a form of payment, treating it like dollars. Cryptocurrency is powered by “blockchain” which is a decentralized ledger system that exists across networks and facilitates the production and exchange of cryptocurrencies (it is more complex than that but we will direct you here to read more). That was a very brief introduction to cryptocurrencies and we recommend that you take the time to read in-depth on how the market and specific currencies work. Finally, it is important to remember that cryptocurrencies involve risk as any investment does but are known for being particularly volatile. Below are several tips for nonprofits to make an informed decision on beginning to accept gifts cryptocurrencies and some key considerations when starting.
Don’t Cause Panic
Cryptocurrencies are confusing. Many people who trade them are challenged to understand and explain how each asset works and how blockchain processes move these assets around. That sentence may have even caused some fright as you may still not know exactly how all of that works. Nevertheless, cryptocurrencies are allowing many traders to increase their wealth and nonprofits are beginning to take advantage of this new, giftable asset. How can you start? Start by discussing cryptocurrencies with the board and your staff just as you would when discussing monetary donations or gifts of securities. That is not to say that you should never get into a discussion of the intricacies of cryptocurrency as it has its own challenges of how it works, security concerns, and risk, but it will help ease the transition into this new type of gift. Avoid scaring off your team by avoiding the technical, confusing jargon and processes when first discussing cryptocurrency gifts.
What Rules Govern Gifts of Cryptocurrency?
Just like with gifts of stocks or property, there are rules set out by the IRS that govern what your organization must do in order to accept such a gift. If a donor makes a gift of cryptocurrency that exceeds $500 in value, the donor must file a Form 8283 with their tax return. Many donors may know this, but it is always helpful and best for everyone involved to remind donors of required filings. If a donor makes a gift that exceeds $5,000, the donor will need to obtain a qualified appraisal of the gift. As of December 2021, the IRS has not made an exception for cryptocurrency to fall within the appraisal exception that applies to securities. So make sure you and your donor communicate about the necessities of filings and appraisals in order to properly receive gifts of cryptocurrency.
How to Accept Gifts of Cryptocurrency
At this stage, you may be considering that you should accept cryptocurrency and are likely wondering how that works. It requires some additional work outside of your digital fundraising programs, but luckily there are many services that provide what you need. What do you need? First, it is most likely that you will need to get a wallet. A wallet is a place to receive and store your cryptocurrency. There are many services available for free, including Coinbase, Gemini, and many more.
Due to the volatility and challenge of understanding the cryptocurrency market, many nonprofits make it policy (we will discuss this below) to sell cryptocurrency gifts immediately after received. A nonprofit could receive the gift into its wallet and then look to sell the asset, but it is easier to set up a payment processor that converts cryptocurrency gifts into dollars and deposits the money into your bank account. Common payment processors include BitPay and Givingblock. BitPay is a service that allows nonprofits to accept cryptocurrency online or in-person on a tablet/smartphone and instantly turns it into cash. BitPay charges a 1% fee on all transactions but no monthly or start-up fees. Givingblock is a service that facilitates cryptocurrency donations to nonprofits. Donors can find many nonprofits on Givingblock and give directly through the site. Finally, traditional brokerages like Fidelity and Schwab Charitable process large bitcoin gifts for free (Schwab also accepts Ethereum). Check out these resources to support your plan for accepting gifts of cryptocurrency.
Create a Cryptocurrency Gift Acceptance Policy
Planning is crucial to our work at NMBL Strategies. Without a plan, you are already setting up for failure. That is true when considering whether to accept gifts of cryptocurrencies. There are a few considerations to make when planning. Your organization should also consider its own unique needs and circumstances when planning. First, many nonprofits that accept cryptocurrency make it a policy to immediately convert gifts of cryptocurrency to dollars due to the volatility of the market. Cryptocurrency presents an opportunity for massive growth but also loss. The best practice for nonprofits is to exchange the asset for its value at the time of the gift. This is where a payment processor like BitPay is very useful as it allows nonprofits to accept cryptocurrencies but never have to touch them. Secondly, your organization should establish policies for accepting these gifts. Accepting cryptocurrencies is not exactly a yes or no decision as there are thousands of currencies all with differing levels of access and acceptability. It is common for organizations to allow a single development staff member to approve gifts of highly common currencies such as Bitcoin, Ethereum, etc. For all other decisions such as currencies not traded in U.S. markets or different kinds of digital currencies, it is a good idea to have a committee that will decide whether or not to accept the gift. A third-party expert on cryptocurrencies can help organizations determine what gifts are appropriate for single-person approval versus a committee.
Moving Forward
We understand and agree that cryptocurrencies are challenging and even scary to begin dealing with, but we also recognize the growing possibilities for nonprofits to boost their fundraising numbers by accepting cryptocurrencies. Nonprofits that accept cryptocurrencies provide donors with opportunities for tax advantages as cryptocurrencies have provided large profits for some and by donating, donors will not have to pay taxes on those capital gains.
Giving crypto as a donation works the same as giving any financial security from a tax perspective. When you donate an appreciated crypto asset (meaning the fair market value of your position is above what you initially paid and established as your taxable basis) to a qualified non-profit, you can deduct this higher value from your taxable income in accordance with charitable contribution rules. From Riley Adams, Author of youngandtheinvested.com, there is a strong pitch to donors as to why they should make gifts of cryptocurrency:
“Instead of liquidating these appreciated positions, donors can coordinate directly with a non-profit on ways to transfer these assets to a wallet capable of holding the position. This makes the donation official and secure, allowing donors to claim the charitable deduction on their tax returns. Donors may use this as a form of tax planning to mitigate tax liability or control their overall tax bill while also helping a qualified non-profit organization with its financial needs this holiday season.”
With services like payment processors, nonprofits can delve into the cryptocurrency market without having to even handle the digital currency. Begin these discussions at your organization and don’t miss out on this new opportunity.
NMBL Strategies has helped nonprofits fundraise for years, with our staff contributing to some of the greatest nonprofit developments of the previous 20+ years. In that time, we’ve raised more than $100 million, developed millions of dollars more in earned income, and most importantly, developed the strategies and insights behind these efforts. Let us bring that experience to your nonprofit today and ensure your financial future is in good hands.
