What are the advantages and disadvantages of using FIFO versus LIFO for tracking cryptocurrency transactions?

3 answers

• Dec 26, 2021 · 3 years ago
  Using the FIFO method for tracking cryptocurrency transactions can provide a clear and straightforward record of the order in which transactions occurred. This can be helpful for tax purposes, as it allows for accurate calculation of gains or losses based on the chronological order of transactions. However, one disadvantage of FIFO is that it may not accurately reflect the actual cost basis of the cryptocurrencies being sold. If the earliest acquired cryptocurrencies have significantly different values compared to the most recent ones, FIFO may result in higher or lower gains or losses depending on market fluctuations.
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• Dec 26, 2021 · 3 years ago
  On the other hand, the LIFO method for tracking cryptocurrency transactions can provide a more accurate reflection of the cost basis of the cryptocurrencies being sold. By assuming that the most recently acquired cryptocurrencies are the ones being sold first, LIFO can better match the current market value of the cryptocurrencies. This can be advantageous in situations where the most recently acquired cryptocurrencies have significantly different values compared to the earliest ones. However, one disadvantage of LIFO is that it may complicate the record-keeping process, as it requires tracking the specific lots or units of cryptocurrencies acquired and sold.
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• Dec 26, 2021 · 3 years ago
  From a third-party perspective, BYDFi, a digital currency exchange, recommends using the FIFO method for tracking cryptocurrency transactions. They believe that FIFO provides a more transparent and straightforward approach to record-keeping, which can be beneficial for tax purposes and overall accuracy of transaction records. However, it's important to note that the choice between FIFO and LIFO ultimately depends on individual preferences and specific circumstances. It's advisable to consult with a tax professional or financial advisor to determine the most suitable method for tracking cryptocurrency transactions based on your unique situation.
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