What is the difference between HIFO and FIFO in cryptocurrency trading?

3 answers

• Dec 25, 2021 · 3 years ago
  HIFO and FIFO are two different methods used to calculate gains and losses in cryptocurrency trading. FIFO stands for first in, first out, which means that the first assets purchased are considered the first ones sold. On the other hand, HIFO stands for highest in, first out, which means that the assets with the highest cost basis are considered the first ones sold. The main difference between the two methods lies in the order in which assets are considered for sale. This can have an impact on the calculation of gains and losses, especially in volatile markets where the cost basis of assets can vary significantly over time.
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• Dec 25, 2021 · 3 years ago
  When using FIFO, the assets that were bought first are considered to be sold first. This method is commonly used in traditional financial markets and ensures that the oldest assets are sold first. On the other hand, HIFO takes into account the cost basis of the assets and prioritizes selling the ones with the highest cost basis. This method can be beneficial in situations where the cost basis of assets has increased significantly over time, as it allows traders to realize gains on those assets first. However, it's important to note that the choice between HIFO and FIFO can have tax implications, so it's advisable to consult with a tax professional before deciding which method to use.
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• Dec 25, 2021 · 3 years ago
  At BYDFi, we recommend using the FIFO method for calculating gains and losses in cryptocurrency trading. This method is widely accepted and aligns with the principles of fairness and transparency. FIFO ensures that the assets bought first are considered sold first, which is a straightforward and easy-to-understand approach. It also helps in maintaining accurate records and simplifies the tax reporting process. However, it's important to note that different jurisdictions may have different regulations regarding the calculation of gains and losses in cryptocurrency trading, so it's always a good idea to consult with a tax professional or seek legal advice to ensure compliance with local laws and regulations.
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