Top Reasons Cryptocurrency Could Be Bad for Your HOA

The COVID-19 pandemic forced community association boards to pivot how they do business, from hosting virtual meetings to reimagining how amenities can be used. Associations even explored the possibility of converting their funds into cryptocurrency.  

The Federal Trade Commission (FTC) defines cryptocurrency as digital money with no physical presence like bills or coins. Is cryptocurrency covered under fidelity/crime insurance? According to Joel W. Meskin, managing director of community association products at McGowan Program Administrators in Fairview Park, Ohio, fidelity coverage is typically for employee dishonesty or theft. “This coverage broadly protects the association when association securities are stolen by an association employee.” Additionally, the crime portion provides coverage for items such as forgery and alteration, premises coverage, and wire transfer fraud. 

Unfortunately, fidelity/crime insurance only covers association employees and does not protect unit owners, explains Meskin, a member of CAI’s Insurance Networking committee and a fellow in CAI’s College of Community Association Lawyers (CCAL). “Associations are not-for-profit entities, so their funds belong to the association legal entity, not the individual unit owners,” he says, adding that “unit owners are not “insureds” under the fidelity/crime policy and would have no right to any funds recovered from losses covered under the policy.”

The board’s obligation is to protect the association, including their liquid assets. Meskin echoes the FTC and warns that cryptocurrency is not backed by any third party, including the government. “This means these funds are unregulated, unstable, and uninsured. They know it is not a safe or common instrument used in community associations,” says Meskin.

Likewise, cryptocurrency adds an unnecessary layer of confusion to association finances. Boards need to communicate their financials to all board members. With stakeholders of various ages and technological knowledge, cryptocurrency can be too complicated, according to Meskin.

For boards considering alternative funds, Meskin suggests asking the professionals. “I would advise that they should put their money pursuant to advice of their community association accountant, their community association lawyer, as well as community association bankers,” he says.

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