What are the potential drawbacks of using first in last out accounting for calculating cryptocurrency gains and losses?

3 answers

• Mar 22, 2022 · 3 years ago
  One potential drawback of using the first in last out (FIFO) accounting method for calculating cryptocurrency gains and losses is that it may not accurately reflect the actual cost basis of the assets. This is because FIFO assumes that the first assets purchased are the first assets sold, which may not always be the case in the volatile cryptocurrency market. As a result, FIFO may lead to higher tax liabilities or inaccurate financial reporting for cryptocurrency traders and investors.
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• Mar 22, 2022 · 3 years ago
  Another drawback of using FIFO for calculating cryptocurrency gains and losses is that it may not consider the specific identification of assets. Cryptocurrency traders often hold different types of cryptocurrencies with varying prices and acquisition dates. FIFO does not account for this and may result in a distorted view of the gains and losses. Traders who strategically acquire and sell specific cryptocurrencies may find FIFO to be a disadvantageous method for calculating their gains and losses.
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• Mar 22, 2022 · 3 years ago
  From BYDFi's perspective, using FIFO for calculating cryptocurrency gains and losses can have its drawbacks. While FIFO is a commonly used accounting method, it may not always provide an accurate representation of the true gains and losses in the cryptocurrency market. Traders and investors should consider alternative accounting methods, such as specific identification or average cost, to ensure a more accurate calculation of their gains and losses.
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