What are the advantages and disadvantages of using the FIFO cost method in the context of digital currencies?

1 answers

• May 02, 2022 · 3 years ago
  From a third-party perspective, using the FIFO cost method in the context of digital currencies offers certain benefits. FIFO provides a systematic and transparent approach to valuing digital assets, which can be useful for tax reporting purposes. It ensures that the cost of the earliest acquired coins is accounted for first, which can help in accurately calculating gains or losses. However, there are also some drawbacks to consider. FIFO may not always reflect the current market conditions, as it assumes that the oldest coins are sold first. This can result in higher tax liabilities or missed opportunities for tax optimization. Additionally, FIFO may not be suitable for all trading strategies, especially in volatile markets where holding onto older coins may not be the most profitable approach.
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