Does Your Nonprofit Have a Crypto Plan? It May Be Time To Adopt One
As digital currencies like Bitcoin and Dogecoin gain popularity, more donors are looking toward these novel assets as a means to contribute to their favorite causes.
The landscape of charitable giving is evolving, with cryptocurrency donations emerging as a noteworthy trend. In its 2022 Giving Report, Fidelity Charitable revealed that the previous year’s donations of cryptocurrency had soared, registering over $330 million in crypto assets through its Donor Advised Fund — a nearly twelvefold increase from the previous year.
As younger generations turn to this new form of investing — due to its low barrier of entry and the hope in catching one of the buzzed about wild upswings — we expect to see this new giving trend continue to rise.
This shift presents both opportunities and challenges for nonprofits, particularly in navigating the complexities of accepting and accounting for these digital donations. Recognizing the need for clarity and guidance, the Financial Accounting Standards Board (FASB) in December issued ASU 2023-08, marking a pivotal update in the accounting practices for crypto assets. This new standard helps define how nonprofits record and report donations received in cryptocurrency, ensuring transparency and alignment with the sector’s financial reporting requirements.
As this new form of currency gains popularity, people will increasingly seek avenues to support causes they care about using digital assets.
Before delving into the specifics of the new FASB guidance, it’s essential to grasp what cryptocurrencies are.
What are cryptocurrencies?
At their core, cryptocurrencies are digital currencies that use cryptography for security and operate on a technology called blockchain — a decentralized ledger that records all transactions across a network of computers. Unlike a traditional form of currency, crypto is not regulated by any central authority, making it a unique type of asset.
Bitcoin and Dogecoin are among the most recognized cryptocurrencies, known for their widespread use and increasing acceptance as forms of payment and donation (not to mention their sometimes wild valuation swings).
The inherent volatility, anonymity, and potential for abuse necessitate specific guidance on valuation and substantiation to manage their unique nature effectively.
Deciphering FASB’s New Crypto Guidance
These new rules apply to all organizations for fiscal years beginning after December 15, 2024. Early adoption is permitted for financial statements that have not yet been issued or been made available for issuance.
The new guidance represents a shift in the accounting approach from a cost minus impairment model to one that measures crypto assets at fair value. This change is aimed at providing a more accurate representation of the economic realities of holding such digital assets. It addresses concerns from various stakeholders about the previous accounting method’s inability to reflect the actual value fluctuations of cryptocurrencies.
Key aspects of ASU 2023-08 include:
- Introduction of Subtopic 350-60: This subtopic specifies how nonprofits should measure, present, and disclose transactions involving crypto assets, aligning with broader Generally Accepted Accounting Principles (GAAP). It does not, however, address the initial measurement, recognition, and derecognition of crypto assets—for that, organizations should proceed in accordance with GAAP.
- Fair value measurement: Subsequent measurement of qualifying crypto assets must be at their fair value within the statement of financial position, ensuring any gains or losses from re-measurement are reflected in the change in net assets.
- Criteria for qualifying crypto assets: The guidance applies to fungible, intangible assets not created by the reporting entity, residing on a blockchain or similar technology, and secured through cryptography, without enforceable rights to underlying goods or services.
- Enhanced presentation and disclosure: Organizations are required to separately present crypto assets and disclose detailed information about significant holdings, ensuring clarity and transparency for donors, stakeholders, and regulatory bodies.
The issuance of ASU 2023-08 is a signal for nonprofits to seriously consider their approach to cryptocurrency donations. As this new form of currency gains popularity, people will increasingly seek avenues to support causes they care about using digital assets. By defining a comprehensive crypto strategy, nonprofits can ensure they are well-equipped to welcome the future of charitable giving, fostering a culture of innovation and inclusivity that resonates with the next generation of donors.
Read FASB’s full guidance on crypto here, or reach out to Han Group for any questions. We exclusively work with nonprofits and understand the challenges these organizations often face.
