The rapid growth of cryptocurrency and digital assets has prompted fresh questions for charity trustees.
With mainstream adoption increasing and some high-profile institutional investors allocating portions of their portfolios to cryptoassets, charities are inevitably considering whether they should follow suit, either by accepting cryptocurrency donations or treating crypto as an investment asset.
The short answer for most charities is to proceed with caution. The Charity Commission has been clear that, while it wishes to support innovation, the risks associated with cryptoassets are significant and must be carefully weighed against trustees' core legal duties.
Volatility is the most obvious concern for many trustees and charity leaders. Cryptoassets can lose a substantial proportion of their value in a very short period.
Bitcoin, for example, has experienced multiple corrections of over 50 per cent over its history and while it has recovered each time, trustees have a legal duty to protect charitable assets, which is difficult to reconcile with holding assets subject to such extreme swings in value.
Beyond volatility, there are several additional risks that trustees should be aware of when considering cryptocurrency for charity funds:
Regulatory uncertainty: Crypto regulation in the UK is still evolving. Current charity accounting guidance does not contain detailed charity-specific provisions on the treatment of cryptoassets, which can create accounting and valuation complexities.
Know Your Donor risks: The pseudonymous nature of the blockchain makes it significantly harder to identify the source of donated funds, creating potential AML and compliance exposure.
Security risks: Digital wallets are not protected by the Financial Services Compensation Scheme and are vulnerable to hacking, theft and hardware failure.
International complications: Cryptoassets are banned in certain countries, which could create problems for charities operating internationally or making overseas grants.
Tax and governance complexity: Unlike many traditional charity investments, cryptoassets do not generally provide a predictable income stream and returns are often dependent on capital appreciation, although some arrangements may generate income-like returns. Trustees must review their governing documents and investment policies to confirm they have the authority to hold such assets.
Accepting donations in cryptocurrency is a different and arguably more manageable proposition for many charities.
In fact, some well-known organisations, including Save the Children and the RNLI, already do so.
The key principle for most charities should be to convert cryptocurrency donations into sterling at the earliest opportunity, thereby eliminating ongoing valuation risk and simplifying accounting treatment.
Before accepting cryptocurrency donations, trustees should satisfy themselves that they can adequately carry out 'know your donor' checks, that the donation aligns with the charity's values and purposes, and that the practical infrastructure is in place to handle receipt securely.
The Charity Commission advises trustees to think very carefully before investing in cryptocurrency, evaluating the benefits and risks as they would any significant financial decision, and to document their decision-making carefully.
Investing in or holding cryptocurrencies can add a great deal of complexity to your organisation, so professional advice should be sought where appropriate. Trustees considering cryptoassets should ensure they understand both the governance and operational implications before proceeding.
Deciding whether to accept or invest in cryptocurrency raises legal, accounting and governance questions that go well beyond a typical investment decision.
Our Charity and Not-for-Profit specialists support trustees in reviewing investment policies, assessing governance arrangements and weighing up the practical and regulatory implications of cryptoassets. We can also help charities put the right processes in place to accept cryptocurrency donations securely and compliantly.
If you would like to discuss cryptocurrency or digital assets in the context of your charity, our team would be happy to help.
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