Most think of non-profits as risk-adverse organizations that are slow to make changes. While this certainly can be true, it is often not. Non-profits don’t have a traditional profit motive (hence the name), but they are driven to achieve a mission.
So why would a volatile asset like bitcoin be suitable for a non-profit not interested in gambling donors’ funds? There are several benefits to bitcoin as both a payment solution and asset, which I’ll highlight below.
Credit Card processing fees – Let’s start with the most obvious one. Right now, non-profits pay about 3% to credit card companies. Given that credit cards are going to be used for most donations (especially smaller amounts), these fees really add up. Unfortunately, right now it is just seen as a necessary cost of doing business. With bitcoin, specifically the lightning network, those fees are reduced dramatically. Depending on the setup you chose, it could be as high as 1.5% and as low as a penny. The lightning network (built on top of bitcoin) enables organizations to reduce high processing fees from credit cards, without necessarily be exposed to the volatility of the bitcoin price.
Investment income is nontaxable – Unlike for individuals or corporations, non-profits who chose to hold bitcoin as an investment, will generally not be taxed on the price appreciation of that bitcoin when/if it is sold at a gain.
Tax reduction for donors (specific to 501(c)3 organizations) – Given the bitcoin price today, this isn’t going to be a big selling point in 2022, but will likely become a major benefit in years to come. If a donor bought bitcoin at $10k and it goes up to $50k, he would have an unrealized gain of $40k. If your organization accepted bitcoin donations, he would be able to donate the full $50k and not owe any tax on the gain. Donors looking to contribute and avoid heavy taxation on their appreciated bitcoin may be more generous than they could be otherwise.
Increase network of donors – the bitcoin community is a small group, but can mobilize and bring new potential donors into your network. While there is no one set of beliefs or values that all bitcoiners hold, if your non-profit is working to empower the individual and remove top down barriers holding them back, you might find that bitcoiners are willing to give up a few Sats to support your cause.
Diversify Investment funds/Endowments – while some non-profits want to keep donor funds in the most conservative investment possible, others have large endowments or reserves that they choose to invest. Often these investments look like a standard 60/40 stock to bond investment portfolio, but sometimes include more high risk investments, like venture funds. While bitcoin has historically been very volatile, and the last year has shown that isn’t going to end anytime soon, there is plenty of risk in the investment portfolio of many non-profits today. Managing risk for a non-profit comes down to two main factors; time frame and position size. Bitcoin price volatility is reduced when holding for 4+ years, but surely your organization will be aware of the price swings if your allocation is too large. One example to consider: Your organization decides to allocate 2% of your investments to bitcoin at $60k, it drops 75% to $15k. Your total investment portfolio is down 1.5% based on that large bitcoin drop, would your organization be negatively impacted by that price drop?
Donor restriction could lead to outsized return – One of the other unique things about non-profits is that donors can place restrictions on their donations. Nonprofits would generally like to have donations completely unrestricted, so that leadership can use funds in the way they feel is most beneficial. However, there are exceptions, Charity Water https://www.charitywater.org/bitcoin) has used donor restrictions to appeal to bitcoiners. They asked for bitcoin donations today and promised to not sell those coins until at least 2025. Many bitcoiners may be hesitant to donate large amounts today, expecting the price to increase drastically over the next few years. Putting a time restriction on how long the funds will be held as bitcoin before being put to use for charitable purposes allows an organization to think long-term, while also honoring donor intent.
Achieve Stretch Goals – Even the most well-funded organizations, have to make tough decisions on where to allocate limited resources. While all non-profits have some fixed overhead, most of their funds are going toward servicing the mission of the organization (hopefully). This allows them to have a low-time preference and focus on the long-term mission of the organization. The flexibility to reduce cost when the bitcoin price is down and do more when the price is up, can help organizations achieve those stretch goals they wouldn’t be able to otherwise.
To be clear, we are still very early in terms of global bitcoin adoption. There will be volatility and limited usage for years to come, but preparing now could put your organization a step ahead in the years to come. Interested in giving your non-profit an edge? Below are a few initial steps you can take to move the process along.
- Talk to the Investment Committee/Baord of Directors – Getting buy in from these groups will be critical and their support will be needed.
- Consider organization’s financial position and any proposed future budgets – It is important to have a good understanding of your organization’s financial health and what is currently being planned for both fundraising and spending, in years to come.
- Connect with accounting team – Your accounting team will need time to build processes around how to accept and track bitcoin donations. It is always better to bring them in early in the process.
- Run into issues? – Don’t be afraid to reach out to other bitcoiners for help. Whether it’s educational resources or hands on training, the bitcoin community is generous with their time. New tools are being built ever day to make this process easier, so even if your organization isn’t ready to embrace bitcoin today, check back in 6-12 months.