How to Accurately Compute Your Gains/Losses in Cryptocurrency

Most portfolio sites like Cryptocompare only measure your gains and losses based on the change current price of the Altcoin you purchased minus your purchasing price. This does not take into account the entire picture. When it comes to cryptos, it has to be computed the same way that accounting for biological assets(livestock, crops, trees) is done. Which is to compute gains and losses in two factors.

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How to Compute Crypto Gains

In livestock, we account for the gains/losses due to the change in the age of an animal and the gains/losses due to the change in the prices per stage of an animal.

We can apply this logic in cryptocurrencies. We should be computing gains and losses on both the change in equivalent BTC of the Altcoin as well as the change in the price of the BTC. Keep in mind that we should also take into account transfer fees and buying/selling fees to account for this more accurately.

Sample Computation

Here is a google doc file I created using fictitious transactions. The link to download it will be at the end of this post.

Computing for Buying Costs

Notice that if you performed these exact trades in Poloniex(not that you can since dogeking coins don't exist) the purchase price would be less of the transaction fees. I disagree with this since you have to take into account all costs incurred to complete the purchase.

Computing for Sales Proceeds

This is a pretty straightforward process. The number of units sold is multiplied by the price per unit. The resulting answer will be lessened by the amount of fees to come up with the net proceeds.

Computing for REALIZED Gains and Losses

Now comes the fun part. Computing exactly how much you've earned from the transactions.

Scenario A - Not Yet Converted to Fiat

If you have not yet converted your BTC proceeds to fiat then the computation is far simpler. We simply add a column to the sales transactions.

Note:

a) We use the First in First Out(FIFO) method. Which means that the first coins you sell are those that you bought the earliest. In this example, we are selling the first batch of coins that were purchased at 0.0000058 Sats. This will be our reference for the purchase cost. This also means that there is now only 65,000 units left in the first batch (100,000-35000=65,000).

b) Gains(losses) are simply computed as:

Sales Proceeds - (Purchase Price Including Fees)

As stated in Note a, the purchase price will be based on a FIFO basis.

Scenario B - Converted to Fiat

This computation will not be as straightforward since we have to compute the change in the price of BTC from the time of purchase up to the time of conversion.

STEP 1: Total Gain and Losses

The concept here will be pretty much the same. Note that we will also use the FIFO method here in determining the purchase price of the BTC sold.

STEP 2: Breakdown/Analysis of Gains and Losses

The total gains and losses can be broken down further for analysis.

a) Total gains due to change in equivalent BTC

We get this by multiplying the gained BTC we computed earlier with the change in BTC price

b) Total gains due to change in BTC price

We get this by multiplying the total BTC sold less the BTC gained multiplied by the change in BTC price

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You can view the google doc file here:
Google Docs Link