Which accounting method, FIFO or LIFO, is more commonly used by cryptocurrency traders and why?

3 answers

• Dec 18, 2021 · 3 years ago
  In the world of cryptocurrency trading, the FIFO accounting method is often preferred by traders. FIFO means that the first assets bought are also the first assets sold. This method is commonly used because it aligns with the traditional accounting principles and is easier to understand and implement. It provides a clear and straightforward way to track the cost basis of assets and calculate gains or losses. Additionally, FIFO can be advantageous for tax purposes, as it may result in lower tax liabilities when the price of the assets increases over time. Overall, FIFO is a popular choice among cryptocurrency traders due to its simplicity and compatibility with existing accounting practices.
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• Dec 18, 2021 · 3 years ago
  LIFO, on the other hand, is less commonly used by cryptocurrency traders compared to FIFO. LIFO stands for Last-In, First-Out, meaning that the most recently acquired assets are the first ones sold. While LIFO can be beneficial in certain situations, such as when the price of assets is increasing rapidly, it is not as widely adopted in the cryptocurrency trading community. One reason for this is that LIFO can complicate the tracking of cost basis and may require more advanced accounting methods. Additionally, LIFO may result in higher tax liabilities when the price of assets increases over time. As a result, many traders prefer the simplicity and familiarity of FIFO over LIFO for their accounting needs.
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• Dec 18, 2021 · 3 years ago
  At BYDFi, we recommend using the FIFO accounting method for cryptocurrency trades. FIFO provides a clear and transparent way to track the cost basis of assets and calculate gains or losses. It aligns with the traditional accounting principles and is widely accepted by tax authorities. By using FIFO, traders can ensure compliance with accounting and tax regulations while maintaining a straightforward and easy-to-understand accounting process. While LIFO may have its advantages in certain scenarios, we believe that FIFO is the more commonly used and practical method for most cryptocurrency traders.
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