Weighted Average Cost Basis

The weighted average cost basis method calculates the cost of an asset by taking the average price paid for all units held in a portfolio. When a portion of the assets is sold, the cost basis is determined by dividing the total cost of all units by the total number of units owned.

This method is often preferred for its simplicity and because it smooths out the impact of price volatility over time. It is a common alternative to FIFO or LIFO in various accounting frameworks.

In the crypto market, this requires tracking every purchase and the corresponding fiat cost to maintain an accurate average. Automated tools facilitate this by continuously updating the weighted average as new purchases are made.

This approach can be beneficial for long-term investors who hold assets over extended periods and want a stable cost basis. It provides a balanced view of the investment cost, though it may not be suitable for every tax strategy.