What is Cost Basis?
Crypto Glossary Definition
The value of an asset when you purchased it, for tax purposes. Used to determine capital gain (difference between cost basis and the value it was sold at).
Why Cost Basis Matters
Cost basis is what you originally paid for an asset (including fees), and it's the number subtracted from the sale price to calculate a taxable capital gain or loss — accurately tracking cost basis across many small trades is one of the most tedious but necessary parts of crypto tax reporting.
Cost Basis in Practice
Imagine an investor named Priya buys 0.5 BTC in March for a total of $15,000, then buys another 0.5 BTC three months later at a different price for $18,000. Each purchase creates its own cost basis, tracked separately because the price paid differed. When she later sells 0.3 BTC, her tax software needs to know which lot that partial sale comes from — using FIFO, LIFO, or specific identification — to calculate whether the sale produced a taxable gain or a deductible loss relative to that lot's original cost basis. If the sale price is above cost basis, the difference is taxed as a capital gain; if below, it can offset other gains. The picture gets more complicated fast: staking rewards, airdrops, and NFT mints each establish a new cost basis at their market value the moment they're received, not when eventually sold. A trader who has made dozens of small swaps across several exchanges and self-custody wallets over the course of a year can easily lose track of which coins originated where and at what price. This is exactly why most active crypto users rely on dedicated portfolio-tracking or tax software rather than manual spreadsheets — an inaccurate or missing cost basis is one of the most common reasons crypto tax filings get flagged for correction.
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