Cost Basis

Cost basis is the original value of an asset for tax purposes, usually the purchase price plus any transaction fees, commissions, or other costs incurred to acquire it. When an asset is sold, the cost basis is subtracted from the selling price to determine the realized gain or loss.

In cryptocurrency, determining the cost basis can be complex due to frequent trades, different purchase prices for the same asset, and exchange fees. Common methods for tracking cost basis include First-In, First-Out (FIFO) or Average Cost Basis.

Accurate cost basis tracking is essential for correctly reporting taxes and avoiding overpayment or underpayment. It serves as the foundation for all capital gains calculations.

Without a precise cost basis, it is impossible to determine the true profitability of a crypto trading portfolio.