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What are the advantages and disadvantages of using balance vs cost basis for tracking cryptocurrency transactions?

avatarmohammad baniasadDec 17, 2021 · 3 years ago6 answers

What are the benefits and drawbacks of using balance versus cost basis for keeping track of cryptocurrency transactions? How do these two methods differ and what impact do they have on tax reporting and investment strategies?

What are the advantages and disadvantages of using balance vs cost basis for tracking cryptocurrency transactions?

6 answers

  • avatarDec 17, 2021 · 3 years ago
    Using balance for tracking cryptocurrency transactions has the advantage of providing a clear and simple overview of your holdings. It allows you to easily see how much of each cryptocurrency you own and how your portfolio is distributed. However, one disadvantage is that it doesn't take into account the price at which you acquired each unit of cryptocurrency, which can be important for tax purposes and calculating gains or losses.
  • avatarDec 17, 2021 · 3 years ago
    On the other hand, using cost basis for tracking cryptocurrency transactions takes into account the price at which you acquired each unit of cryptocurrency. This can be beneficial for tax reporting as it allows you to accurately calculate your gains or losses. However, it can be more complex to keep track of, especially if you have made multiple purchases at different prices. Additionally, using cost basis may require more detailed record-keeping and documentation.
  • avatarDec 17, 2021 · 3 years ago
    From a tax perspective, using cost basis is generally recommended as it provides a more accurate representation of your gains or losses. This can be especially important if you are subject to capital gains tax. However, using balance can still be useful for getting a quick overview of your holdings and portfolio allocation.
  • avatarDec 17, 2021 · 3 years ago
    When it comes to investment strategies, using balance can help you easily see the overall distribution of your portfolio and make adjustments accordingly. However, using cost basis can provide more detailed insights into the performance of individual investments and help you make more informed decisions.
  • avatarDec 17, 2021 · 3 years ago
    At BYDFi, we recommend using cost basis for tracking cryptocurrency transactions as it provides a more accurate representation of your gains or losses. However, we understand that each individual's situation is unique and encourage you to consult with a tax professional or financial advisor to determine the best method for your specific needs.
  • avatarDec 17, 2021 · 3 years ago
    Using balance or cost basis for tracking cryptocurrency transactions ultimately depends on your personal preferences and goals. Both methods have their advantages and disadvantages, and it's important to consider factors such as tax reporting requirements, investment strategies, and ease of use when making a decision.