Non-Profits: Exploring Bitcoin Investments

Bitcoin and other cryptocurrencies have become increasingly popular in recent years, and many nonprofits are now considering whether to accept them as donations or even hold them as investments. Cryptocurrencies are digital assets that use cryptography to secure transactions and verify the transfer of assets. They are decentralized and do not rely on banks or central authorities. Bitcoin, the most well-known cryptocurrency, has seen its value increase exponentially, and it has begun to achieve mainstream acceptance, with companies such as Microsoft and Overstock accepting it. Nonprofits are exploring the potential benefits of Bitcoin, including broadening their donation channels, providing tax benefits to donors, and saving on international transaction fees. However, there are also risks associated with the volatility of the cryptocurrency market and the potential challenges of regulatory compliance and data security.

Non-profits can accept Bitcoin donations

How to Accept Bitcoin Donations

To accept Bitcoin donations, non-profits can use a payment processor or platform such as Coinbase, BitPay, Engiven, the Giving Block, or FreeWill. These platforms can help facilitate the receipt and liquidation of Bitcoin donations. It is important to research the different platforms to find the one that best suits the organisation's needs.

Tax Implications of Accepting Bitcoin Donations

It is important to note that the IRS classifies cryptocurrency as property, not currency. This means that there are specific tax implications for both the donor and the non-profit organisation. For example, a donor must file Form 8283 for a non-cash charitable contribution if the donation is over $500, and if the donation is over $5,000, they must obtain a qualified appraisal. Additionally, if a non-profit sells donated cryptocurrency within three years of receiving it, they must file Form 8282 with the IRS.

Benefits of Accepting Bitcoin Donations

Accepting Bitcoin donations can have several benefits for non-profits. Firstly, it can broaden the ways in which the organisation receives donations, providing an additional source of revenue. Secondly, it can attract larger donations, as donors may pass on the tax savings associated with donating appreciated assets. Finally, accepting Bitcoin can help non-profits reach a new pool of donors, particularly younger, tech-savvy individuals who may not have as much disposable income but hold a lot of wealth in cryptocurrency.

Risks of Accepting Bitcoin Donations

While accepting Bitcoin donations can provide several benefits, there are also some risks to consider. The volatile nature of the cryptocurrency market means that the value of Bitcoin can fluctuate significantly. Therefore, it is essential for non-profits to have clear acceptance and liquidation policies in place to minimise the risk of accounting discrepancies. Additionally, donor anonymity can be a challenge, as cryptocurrency donations often appear without a name attached, making it harder to steward anonymous donors and capture their information for future solicitations.

Bitcoin donations are a marketing opportunity

Bitcoin has become a well-known cryptocurrency, receiving a lot of attention in recent years. Its popularity has increased exponentially, with its value growing at unprecedented rates. As a result, it has become an attractive option for donors looking to contribute for tax-planning purposes. By accepting Bitcoin, nonprofits can tap into a new source of donations and reach younger, more diverse, and more tech-savvy donors.

• Broaden your donor base: By accepting Bitcoin, nonprofits can reach a new pool of donors, particularly younger, tech-savvy individuals who are comfortable with digital currencies. This allows nonprofits to build relationships with a new generation of donors.
• Larger donations: Donors who give appreciated assets like Bitcoin tend to give larger gifts than they would with cash. This is because they can pass on the tax savings to the nonprofit. By encouraging donors to give from their wealth (e.g., crypto assets) rather than disposable income, nonprofits can unlock major gifts from under-the-radar sources.
• Tax benefits for donors: Donating Bitcoin directly to charity allows donors to avoid capital gains taxes and may entitle them to federal income tax deductions. This provides an incentive for donors to give and can result in larger gifts.
• No processing fees: Major payment processors like Coinbase do not charge any processing fees for donations to 501(c)(3) nonprofits and charities. This means that the nonprofit receives the entire donation amount, maximizing the impact of each gift.
• Instant transfers: Bitcoin transfers are relatively instant, which can be beneficial for nonprofits with time-sensitive missions, such as disaster relief.

To take advantage of this marketing opportunity, nonprofits should consider the following:

• Update gift acceptance policies: Nonprofits should update their gift acceptance policies to state whether they will accept cryptocurrency donations and whether they will hold or sell them immediately.
• Educate staff: It is important that gift officers and marketing teams understand how Bitcoin works and feel comfortable talking about it with donors. They should know how donors can give Bitcoin and be able to explain the general tax benefits involved.
• Reach out to existing donors: Nonprofits can promote crypto giving to their existing donors, either as a soft FYI or by directly soliciting gifts from those who own crypto.
• Develop an acquisition plan for new crypto donors: Target crypto owners through online spaces such as email, social media, and other virtual platforms. Use text messages to reach out or follow up with donors, as this younger demographic is more likely to respond via text.
• Include crypto donation options on your website: Ensure that donors know about the option to give crypto by highlighting it on your website, particularly on the "ways to give" page and a crypto-specific landing page.

By embracing Bitcoin donations and incorporating them into their fundraising strategies, nonprofits can tap into a new source of support and connect with a diverse range of donors.

Bitcoin is a safe haven for non-profits

Non-profits are often cash-strapped and rely on donations, grants, and other sources of funding to carry out their missions. As such, they need to be prudent with their finances and carefully consider the risks associated with holding large amounts of cash or other "safe" assets like bonds. In today's uncertain economic climate, these traditional assets may not be as safe as they once were, with around 27% of the world's investment-grade debt yielding negative interest.

Bitcoin, on the other hand, provides a hedge against this uncertainty. Its value has grown at unprecedented rates, and it has become an attractive option for donors looking to contribute for tax-planning purposes. By donating Bitcoin, donors can avoid income tax on unrealized gains, and the non-profit receives the full value of the donation without any processing fees. This makes Bitcoin an excellent tool for non-profits to increase their revenue streams and attract a new generation of donors.

Additionally, Bitcoin can help non-profits save money on international transactions and staff payments. The fees associated with Bitcoin are a fraction of the typical international transaction fees charged by traditional banks. Non-profits can also use Bitcoin to pay staff and volunteers abroad, who can then choose to convert their payments into local currencies or hold them as part of their retirement plans.

While the volatility of Bitcoin may be a concern for long-term investments, non-profits can take advantage of its short-term fluctuations by buying and sending Bitcoin immediately upon receipt. This way, they can avoid the risk of holding Bitcoin over the long term while still benefiting from its efficiency and low transaction costs.

By embracing Bitcoin, non-profits can ensure they stay ahead of the curve, protect their capital, and even grow it over time. With its superior characteristics compared to gold or ever-inflating government money, Bitcoin is a safe haven for non-profits in an uncertain world.

Bitcoin can be exchanged for fiat money

Bitcoin is a cryptocurrency, a digital asset that can be used as a medium of exchange. It can be exchanged for fiat money, such as the US dollar, the Japanese yen, the South Korean won, and the European Union's euro. Cryptocurrency exchanges allow people to buy Bitcoin and other cryptocurrencies using fiat currencies.

Bitcoin can be acquired through several methods, including mining, receiving it as payment for goods or services, or exchanging it for fiat currencies or other cryptocurrencies. Its value is derived from its ability to function as a store of value and a unit of exchange. Bitcoin is decentralised and does not go through a bank, but it can be stored in a wallet, similar to a bank account.

The value of Bitcoin is influenced by several factors, including its restricted supply and increasing demand. It is also affected by investor demand, with investors buying and selling Bitcoin to make profits. Additionally, Bitcoin's price volatility is driven by factors such as supply, demand, fear, and greed.

Non-profit organisations can accept Bitcoin donations and may find it advantageous due to the absence of processing fees associated with traditional payment methods. However, it is important to carefully consider the risks involved, such as the volatility of the cryptocurrency market, before investing in or holding Bitcoin.

Bitcoin has lower international transaction fees

Bitcoin and other cryptocurrencies have gained a lot of attention in recent years, and many nonprofit leaders are curious about the potential benefits for their organizations. One of the main advantages of Bitcoin is its ability to facilitate lower international transaction fees, making it an attractive option for those seeking low-cost transactions.

How Bitcoin Achieves Lower International Transaction Fees

Bitcoin's decentralized nature eliminates the need for intermediaries such as banks or remittance software providers (RSPs). This removes the additional costs associated with these middlemen, making it a more cost-effective option for international transactions.

Advantages of Lower Transaction Fees

Lower transaction fees benefit individuals who frequently engage in international transactions or businesses that process a high volume of international payments. They also promote financial inclusion by making Bitcoin accessible to individuals with limited resources or those who are financially marginalized.

Additionally, lower fees facilitate faster and more efficient transactions. With reduced fees, users can send and receive Bitcoins quickly, without experiencing delays due to high congestion on the blockchain network.

Comparison to Traditional Remittance Services

Traditional remittance services often incur high costs. The World Bank found that sending $200 can result in average fees between 5% and 9.3%, depending on the destination country and service used. These fees are due to compliance costs, capital controls, and other restrictions associated with traditional financial infrastructure.

Concerns and Drawbacks

While Bitcoin offers lower transaction fees, it is important to note that these fees can be unpredictable and are calculated on a per-byte basis. This means that smaller transactions are relatively more expensive. As of February 2021, the average Bitcoin transaction cost was $23, making it impractical for small remittances.

Additionally, the high fees associated with the Bitcoin network can make it less attractive for remittances, especially when compared to competing cryptocurrencies like Ripple and Dash, which offer substantially lower fees.

Bitcoin's lower international transaction fees make it a viable option for those seeking cost-effective and efficient cross-border transactions. However, the unpredictable nature of these fees and the relatively higher cost for smaller transactions are considerations to keep in mind.

Frequently asked questions