The rapid rise of cryptocurrency and digital assets has thrown up fresh questions for trustees.

With mainstream adoption growing and some high-profile institutional investors allocating slices of their portfolios to cryptoassets, charities are inevitably being asked whether they should do the same.

This could be in the form of accepting donations in cryptocurrency or by considering it as an investment in its own right. For most charities, the short answer is to tread carefully.

The Charity Commission has been clear that while it wants to support innovation, the risks attached to cryptoassets are significant and need to be weighed against trustees’ core legal duties.

Why cryptocurrency presents unusual risks for charities

Volatility is the most obvious concern. Cryptoassets can lose a substantial share of their value over a very short period.

Bitcoin alone has been through multiple corrections of more than 50 per cent during its history.

It has recovered each time, but trustees have a legal duty to protect charitable assets, and that duty is difficult to reconcile with holding something subject to such dramatic swings in value.

Beyond volatility, there are several other risks worth keeping in mind:

  • Regulatory uncertainty – Crypto regulation in the UK is still developing. The Charities SORP does not yet address cryptoassets specifically, which creates accounting complexity.
  • Know Your Donor risks – The pseudonymous nature of the blockchain makes it much harder to identify the source of donated funds, with knock-on exposure on anti-money laundering and compliance.
  • Security risks – Digital wallets fall outside the Financial Services Compensation Scheme and remain vulnerable to hacking, theft and hardware failure.
  • International complications – Cryptoassets are banned in certain countries, which can cause difficulties for charities operating overseas or making international grants.
  • Tax and governance complexity – Cryptocurrency generates capital growth rather than income. Trustees need to review their governing documents and investment policies to confirm they actually have the authority to hold such assets.

Accepting cryptocurrency donations

Accepting donations in cryptocurrency is a different proposition and, for many charities, a more manageable one. Several well-known organisations, including Save the Children and the RNLI, already do so.

For most charities, the guiding principle should be to convert any donation into sterling at the earliest opportunity.

That removes ongoing valuation risk and keeps the accounting treatment straightforward.

Before accepting cryptocurrency donations, trustees should be confident they can carry out proper ‘know your donor’ checks, that the donation aligns with the charity’s values and purposes and that the practical infrastructure is in place to receive it securely.

Here to help you untangle the complexities of cryptoassets

The Charity Commission’s advice is for trustees to think very carefully before investing in cryptocurrency, weighing up the benefits and risks as they would for any significant financial decision and documenting their reasoning thoroughly.

Investing in or holding cryptocurrencies can add real complexity to an organisation, and professional advice should be taken where appropriate.

If you would like guidance on what investing in or holding cryptocurrency might mean for your charity’s accounting treatment and finances, please speak to our specialist team at Milsted Langdon.