How Should Your Nonprofit Handle Cryptocurrency Assets?

person holding tablet and touching virtual screen with finance and bitcoin graphics

Cryptocurrency presents many challenges to nonprofits that accept it as payment or donations. Crypto such as bitcoin, ether, and the many other digital assets on the blockchain, are becoming ubiquitous with everyone from college kids to grannies dabbling in the new financial asset. And while regulations are being discussed, companies and organizations are left struggling to understand how to track and manage it. Here are the challenges and some advice for nonprofits interested in accepting or utilizing crypto assets.

What Is a Cryptocurrency?

Cryptocurrency, or crypto, is a digital asset tracked on the blockchain—an immutable public register of transactions that enable anyone to track the original and transfer of the asset. While you may know the major “coins” from the news such as bitcoin or ether, there are hundreds of other coins on the market.

Challenges of Cryptocurrency

Crypto is a new category of financial asset and one that regulators continue examining to determine how to account for them. Are they investments (like stocks or bonds) or assets (like gold or silver)?

In addition to challenges understanding classification and the rules governing such classifications, there are additional challenges inherent in accepting them either as payment or donation, including:

  • Highly volatile value: Unlike fiat currency, which offers a stable store of value (despite inflation), the value of digital assets varies widely from day to day, even hour to hour. This makes it difficult to estimate and track over time.
  • Incompatible with ERP setup: Crypto values are tracked to the 16th decimal place, which is completely incompatible with ERP systems set up to track dollars, euros, and other common currency.
  • Difficulty tracking: GAAP rules require tracking of assets on a cost basis (the initial purchase price of the asset), the fair value of their holdings, and the book value. This is impractical with digital assets due to their volatility, but clear guidelines are lacking from regulators.

Forming a Crypto Asset Strategy

Given the many challenges, you may be wondering why your organization should even consider accepting cryptocurrencies. Donors may wish to contribute to your organization using crypto, and this is a valid reason to consider adding it as a donation method. To do so effectively, you’ll need to create a crypto asset strategy to guide your staff in handling such assets.

  • Learn first: As with any new technology, platform, or asset, it’s important to learn all you can about it before diving in. Discuss adding cryptocurrencies to your organization with your accounting team and outside CPAs (if you have one) to understand their point of view.
  • Research payment gateways: Cryptocurrency payment gateways enable you to streamline transactions. Bit Pay and others offer ways in which you can send and receive crypto in the easiest manner possible.
  • Discuss with your board: Your board needs to be fully behind the project to add crypto as a payment or donation method. Bring the issue to your board and ensure a thoughtful discussion by sharing industry statistics and information with them. Some board members will be unfamiliar or even put off by the news from the crypto world and may need some additional information prior to engaging in a discussion.
  • Engage stakeholders: Bring the issue to your internal teams, too. Ask representatives from each department to be on a committee or group to investigate adding crypto to your organization. It’s vital to hear from every department that may be impacted by the decision.

Keep in mind that if you do proceed with crypto, you may need to customize aspects of your accounting system as well as internal controls to adjust to this new method of payment.

Cryptocurrency seemed like a fad when it appeared in 2008, but it’s still going strong. If it looks like an opportunity for your organization, begin exploring it today.

Welter Consulting

Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact us for more information.