The Cryptocurrency Merry-Go-Round: Are you on?

Reading the headlines about cryptocurrency feels a lot like a merry-go-round. So many ups and downs. For instance, in the past few months alone:

• In April, Coinbase, a company that allows people to buy and sell cryptocurrencies, had an initial public offering of $100B.
• But then, in May 2021, China announced that banks and firms “were not allowed to offer clients any services involving cryptocurrencies,” according to the Guardian.
• But also in May, Wharton School of University of Pennsylvania announced a $5 million gift in Bitcoin to support financial technology programs at the Stevens Center for Innovation in Finance, per The College Post.
• In June 2021, El Salvador made bitcoin legal tender in the country and Paraguay may follow suit.

And up and down it goes, like a merry-go-round.

But while there are lots of questions about the future of cryptocurrencies, there’s no question that people are making money… and donating the proceeds to charity.

Some major organizations have already bitten the bullet and have been accepting cryptocurrencies for several years, like Save the Children and Lutheran World Relief. In 2020, donors gave $28 million in cryptocurrencies to Fidelity Charitable — up from $13M in 2019. And don’t forget the $5M gift to Wharton School.

Given the reality of these gifts, organizations might want to consider whether they should accept cryptocurrencies and develop policies about accepting those types of gifts.

To Take Bitcoin or Not to Take Bitcoin?

Just like the merry-go-round of news surrounding cryptocurrencies, there are reasons for and against accepting cryptocurrency donations. There’s the obvious opportunity noted above with more donations coming in each year. The Giving Block estimates that $300M is given in cryptocurrency each year.

But there’s a lot of volatility. Tweets by Elon Musk and government regulations in China have caused various cryptocurrencies to tumble. And there’s also the use of cryptocurrencies in illegal operations; hackers demanded ransom over the Colonial Pipeline in cryptocurrency. So, there’s a bit of a Wild West element even today with these currencies.

One of the big considerations is whether it makes sense for your specific organization to accept these new currencies. Could your donor and constituent base give cryptocurrencies?

If you have a lot of tech folks in your database ranks, then it might be a good idea. But even if you don’t or don’t know enough about your donors to know, there may be folks in your donor rolls who are interested. Some organizations are accepting cryptocurrencies as a way to encourage new donors to give back.

Planning, Planning, Planning

If your organization does decide to go ahead with cryptocurrency donations, it’s absolutely critical to have a plan. It’s a bit like due diligence; better to have a policy first than have to scramble after the fact.

For instance, what cryptocurrencies will your organization accept? There are 4,000+ according to Investopedia as of January 2021. That’s a lot of cryptocurrencies! But not all are equal. The Giving Block reports that 90% of donations are in bitcoin. Your organization might want to find the most popular cryptocurrencies and set up a digital wallet for those currencies.

Then you’ll need a plan on how to handle the donations coming in. Who will check the digital wallet? How often? What do you do with the donation? The best practice is to sell the cryptocurrencies, like stock transactions, when they are received, especially given the volatility. But what if a donor asks for your organization to hold on to it? There’s a question of donor intent there that is worth investigating.

Also, given the association of cryptocurrency and illicit activities, maybe your organization will want to investigate prospective crypto-donors before the gift is made? It could be a“trigger” for due diligence work, especially for donations over a certain amount.

But there are also fresh opportunities for fundraising growth, too. Should your organization consider having a crypto-campaign to let people know that you are accepting these types of donations? Maybe targeted material might be the right thing to get new donors?

There is some exciting potential with cryptocurrency, but it’s important to be prepared.

And for those folks who still think cryptocurrency is a passing fad, I cannot help but recall the wise words of John Taylor of Principal at John H. Taylor Consulting, in a 2019 interview:

Additional Resources

• In a world first, El Salvador makes bitcoin legal tender | Reuters 2021
• Bitcoin plunges after China crackdown | Guardian 2021
• Wharton Receives Anonymous $5 Million Bitcoin Donation | The College Post 2021
• Fidelity’s Charity Arm Raised $28M in Crypto Donations Last Year | Coin Desk 2021
• Coinbase, A Bitcoin Startup, Goes Public. Is Crypto Really The ‘Future Of Finance’? | NPR 2021
• The 10 Most Important Cryptocurrencies Other Than Bitcoin | Investopedia 2021
• FAQ | The Giving Block Not dated
• How cryptocurrency has become a force in philanthropy | The Daily Dot 2019