Basis Tracking, within crypto investing, is the systematic monitoring and calculation of the cost basis for digital assets held in a portfolio. This involves recording the original purchase price, including any associated fees, for each asset. Its primary purpose is to accurately assess capital gains or losses for tax reporting and to evaluate investment performance.
Mechanism
The mechanism for basis tracking relies on capturing and storing detailed transaction records, such as acquisition date, quantity, price per unit, and exchange fees. These data points are then processed through accounting software or proprietary algorithms that apply a specific cost basis method, such as FIFO, LIFO, or average cost, to determine the basis for assets sold or transferred.
Methodology
The methodology involves maintaining an auditable trail of all digital asset transactions. This typically includes integrating with various exchanges and wallets to import trade data, standardizing data formats, and applying a consistent accounting principle. The strategic objective is to ensure compliance with tax regulations and provide transparent performance metrics for investment decisions.
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