Should You Accept Crypto Donations? Consider These Questions First

With cryptoassets gaining exponentially in popularity, gifts of digital currency to nonprofits and foundations are becoming more common. As generous and potentially impactful as these offers may be, accepting crypto donations should be evaluated carefully—with the help of experts and, ideally, buy-in from all levels of your organization.

While you’ve likely heard of bitcoin, it’s just one of around 10,000 virtual currencies. 2021 saw precipitous surges and declines in many of these cryptoassets, whose value tends to be extremely volatile. Some wealthy individuals who’ve profited are looking to divest their holdings without having to pay taxes on the appreciation: doing good without reporting costly gains. Yet when it comes to donations of cryptocurrency to nonprofits and foundations, discretion is the better part of valor as this concept remains in its infancy (Display). 

Cryptocurrency Is Set to Play a Greater Role in Philanthropy

 

Assessing the Benefits of Crypto Donations

The IRS classifies donated cryptocurrency as property, not currency. That means donors can avoid capital gains by making an in-kind gift. As with any other complex gifts you may have received, documentation and risk assessment are paramount. A third-party organization can be helpful in valuing these assets.

Here are some other high-level considerations:

  • What risks are involved in accepting a potentially volatile asset?
  • Will you incur additional operating costs or complexities in trying to accommodate this new type of request?
  • Does it make sense to sell the cryptoassets immediately, or hold onto them as part of your investment portfolio?

Answering those big-picture questions means digging deeper and consulting experts in the legal and operational aspects of a crypto donation.

Crypto Donation Checklist

To help you get started, use the following prompts when deciding whether to accept in-kind donations of cryptoassets:

Policy and Governance Considerations

  • Who on your staff is involved in the decision-making process? Have you notified your board and sought their input?
  • Do you have procedures in place to document the discussion around both gift acceptance and investment policies?

Ethical Considerations

  • While not all cryptoassets are energy intensive, the environmental impact of “mining” digital currency is concerning to some. If your organization’s mission centers on climate change, the ethical angle may be worth considering.
  • If you’re concerned about the background of a donor offering a large sum in the form of cryptoassets, consult with lawyers who specialize in anti-corruption reviews.

Investment Considerations

  • Is your instinct to immediately liquidate a crypto donation and use the resulting cash for programming, operating expenses, etc.? Or is holding onto it for possible future appreciation appealing, with the caveat that losses might be just as likely as gains over time? Your Investment Committee and financial advisor should participate in this conversation.
  • Would you use a cash donation to buy bitcoin or another virtual currency? If not, then holding crypto in your investment portfolio may not be the right move.

Development Considerations

  • Marketing a crypto acceptance program could alert donors that your nonprofit has done its homework, built an infrastructure to accept crypto, and is familiar with the tax benefits for donors.
  • Openness to crypto donations could attract younger donors, who may be more likely to have crypto stakes and recognize the benefit of offsetting realized gains among those assets.
  • Keep in mind that donors planning to gift digital currencies will need a qualified appraiser to document the crypto’s value.

Operational Considerations

  • Cryptocurrencies are held in digital wallets, accessible with a password known only to the owner. Unfortunately, passwords are easy to lose or forget. An estimated 20% of the value of all bitcoins is lost and likely unrecoverable, due to owners having forgotten passwords. Given the healthy turnover at many nonprofits, instituting a rigorous protocol for password maintenance and recovery is essential if you intend to set up your own wallet.
  • In terms of IRS reporting requirements, donations of crypto should be disclosed as non-cash contributions.

Can Outsourcing Help Smooth Crypto Donations?

To avoid the potential headaches involved with opening a digital wallet, many nonprofits and foundations are turning to third parties to manage crypto donations. Entities set up to process crypto donations have experience in tax filing, anti-corruption measures, and valuation of digital assets, aspects that could make acceptance of these donations less burdensome for your organization.

After a donor offers crypto, if your institution has weighed all of the pros and cons and decides to press on, your investment advisor (directly or through an intermediary) can help fulfill the following roles: 

  • Accepting the actual donation on your nonprofit’s behalf
  • Liquidating it
  • Passing it on to your organization’s bank or investment account

While more donors are considering crypto transfers to their favorite charities, the concept is relatively new, and its challenges are still being sorted out. The upshot: don’t go it alone. Your Bernstein team can guide you through these discussions, offer financial expertise, and connect you with legal and operational experts. 

Authors
Margaret Borrasso
Associate Director—Foundation & Institutional Advisory

The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.

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