Giving Compass' Take:

• Philip Hackney and Brian Mittendorf explain how charities take on risk because of the volatility of digital money when they choose to accept it.

• Should organizations accept digital money? 

• Learn about a crypto charity fund

Many large charities, despite being entrusted with accepting and managing funds that benefit the public, are accepting bitcoin and other cryptocurrencies – volatile forms of digital money – as donations.

Take, for example, the Silicon Valley Community Foundation, one of the country’s largest charities. It held a third of its US$13.5 billion investments – nearly $4.5 billion – in digital assets according to its annual financial statement.

As experts in the tax and financial issues charities face, we have spent considerable time examining what got nonprofits dabbling in digital currencies in the first place and what could go wrong as a result.

While the Silicon Valley Community Foundation probably holds more cryptocurrency than any other charity, it is not unique. Fidelity Charitable, the top U.S. charity in terms of the donations it amasses annually, said digital money was its fastest-growing category in 2017.

Smaller charities are also accepting donations in bitcoin, as are new charities focused solely on cryptocurrency. The giving of digital money surged in 2017, just as the market for these newfangled assets boomed.

Bitcoin, the most common cryptocurrency, rose by 1,318 percent against the U.S. dollar in 2017.

hese gains gave way to massive losses in the first eight months of 2018, when digital currencies plunged more sharply than the dot-coms crashed in the early 2000s.

Some charities that received massive cryptocurrency donations in 2017 may not have been able to convert them into regular money before they lost much of their value the next year. Silicon Valley Community Foundation, for example, disclosed in its 2017 audit report that for more than 45 percent of its investment assets, restrictions would prevent them from being converted to cash at any point in 2018.

The fact that charities only disclose their financial data once a year means that the scale of their at-risk wealth, as of now, is unknown.

Read the full article about the risks of accepting digital money by Philip Hackney and Brian Mittendorf at Philanthropy Daily.