How to Track gains and losses in the World of Cryptocurrency?

Coinbase, a popular platform used for buying and selling cryptocurrency, has added a new dashboard that makes it easier for users to track their gains and losses. The dashboard is intended to help users when it’s time to report their crypto-asset activity to the IRS, though Coinbase notes it doesn’t report gain/loss information to the agency.

Coinbase’s new tax dashboard helps users report crypto gains in world of cryptocurrency

The average person treats cryptocurrency the same way they would money, but the IRS views it differently. According to the taxation agency, bitcoin and other digital crypto are considered property, meaning users are expected to report their gains and losses when filing their annual taxes. Tracking that information can be difficult, however, and exchanges historically haven’t helped with the matter.

Coinbase aims to change that with its newly introduced tax dashboard. Though the information may not be entirely what you need when reporting your crypto assets to the IRS, it does provide a snapshot of the transactions and valuation changes that have taken place through the Coinbase account, and that’s a solid start.

Viewing your Coinbase tax dashboard

Coinbase users can access the tax dashboard from the platform’s website or app. On the website, users can click their profile picture in the upper right corner of the screen and select “Taxes” from the drop-down menu. On the app, users must tap Profile & Settings to open the menu with the tax dashboard link.

The dashboard provides a snapshot look at the transactions made using that Coinbase account during the previous year, including crypto assets that were converted from one digital coin to another, the quantity of crypto sold, the quantity of crypto that was spent, and any “advanced trading” transactions.

Coinbase tax dashboard menu

Based on the transactions, the dashboard also provides an estimated loss or gain, though Coinbase is careful to note the figure is “calculated based on assumptions.” Users are also presented with “miscellaneous income” information, which includes transactions based on things like rewards and interest.

Some users who received income in the form of rewards or from staking will be able to download a 1099-MISC form. This taxation form is issued to both the user and the IRS if the account earned at least $600 in cryptocurrency during the previous year.

Crypto enthusiasts who have conducted multiple transactions, including getting crypto through external wallets, are advised to check out CoinTracker, which will provide a tax report with up to 3,000 crypto transactions for free.

How Does Cryptocurrency Gain Value?

Cryptocurrency can gain value on exchange platforms. It increases in value based on supply and demand. The supply of a cryptocurrency depends on how many new coins are being mined and how many current owners want to sell their coins.

The demand for a cryptocurrency depends on many factors. Demand will be increased based on how useful it is to own the coins. This means if the crypto monetary system works well (i.e. fast transactions and low fees), if smart contracts become more commonplace, and if more businesses start to accept crypto, the demand for crypto will increase. Additionally, there is an increased demand for cryptocurrencies as a store of value investment.

How does cryptocurrency gain value? Like any market, the value of cryptocurrencies fluctuates based on the market’s perception of its value at any given time. These fluctuations may be rooted in some of the supply and demand factors mentioned above or can happen as a result of hidden market factors.

How Users Increase Crypto Value

There are also a few methods how users increase cryptocurrency value-

Buy low, sell high – using the classic investment strategy, users can increase the value of crypto by buying and holding coins. The buying increases demand and hence crypto value increases.
Mining – the act of mining Bitcoins or altcoins can be profitable. It also impacts the supply of cryptocurrencies.
Increasing utility – as more institutions invest in crypto and accept it as a form of payment, its utility increases. As a user, you can contribute to this process. This will increase the value of cryptocurrencies over the long term.
Media coverage – crypto prices fluctuate according to media coverage. Users can impact this through their social media accounts.

6 Strategies for Making Money with Crypto

If you are wondering how to make money with cryptocurrency, look no further! Strategies for making money with crypto rely on three mechanisms:

Firstly, you can invest or trade in the crypto exchange market. You can do this without owning any crypto yourself, like investing in gold on the stock market. Secondly, you can use the coin you already own to stake and lend coins to the system or other users.

Thirdly, you can participate in the blockchain system by mining or receiving coin rewards for work done in the system. Based on these three mechanisms, here are the six strategies for making money with cryptocurrency:

Investing
Trading
Staking and Lending
Crypto Social Media
Mining
Airdrops and Forks

Each of these strategies is explored in more detail below.

1. Investing

Investing is the long-term strategy of buying and holding crypto assets for some time. Crypto assets are generally well suited to a buy-and-hold strategy. They are extremely volatile in the short term but have tremendous long-term potential for growth.

The investing strategy requires you to identify more stable assets that will be around for the long term. Assets such as Bitcoin and Ethereum have been known to show a long-term price increase and can be considered a safe investment in this regard.

2. Trading

While investing is a long-term endeavor based on the buy-and-hold strategy, trading is meant to exploit short-term opportunities. The crypto market is volatile. This means the prices of assets can increase and decrease in price dramatically over the short term.

To be a successful trader, you need to have the proper analytical and technical skills. You’ll need to analyze market charts on the performance of the listed assets so that you can make accurate predictions about price increases and decreases.

When trading, you can either take a long or short position, depending on whether you expect the price of an asset to rise or fall. This means you can make a profit regardless of whether the crypto market is bullish or bearish.

3. Staking and Lending

Staking is a way of validating crypto transactions. If you are staking, you own coins but you don’t spend them. Instead, you lock the coins in a cryptocurrency wallet. A Proof of Stake network then uses your coins to validate transactions. You receive rewards for doing so. In essence, you are lending coins to the network. This allows the network to maintain its security and verify transactions. The reward you receive is similar to the interest a bank would pay you for a credit balance.

The Proof of Stake algorithm chooses transaction validators based on the number of coins you have committed to stake. This makes it’s much more energy-efficient than crypto mining and does not require you to own expensive hardware.

You can also choose to lend coins to other investors and generate interest on that loan. Many platforms facilitate crypto lending.

4. Crypto Social Media

Multiple blockchain-based social media platforms will reward you for creating and curating content. You are often rewarded with the native coin of the platform.

5. Mining

Cryptocurrency mining is how to make money with cryptocurrency like the original pioneers. Mining is still a crucial component of the Proof of Work mechanism. It is where the value of a cryptocurrency is generated.

If you mine a cryptocurrency, you are rewarded with new coins. To mine, you need technical expertise and upfront investment in specialized hardware. Running a master node as a subset of mining. It requires expertise and significant upfront and ongoing investment.

6. Airdrops and Forks

Airdrops and free tokens are distributed to generate awareness. An exchange might do an airdrop to create a large user base for a project. Being part of an airdrop can get you a free coin that you can then use to buy things or to invest or trade.

A blockchain forks because of changes or upgrades in a protocol that create new coins. If you hold coins on the original chain, you will typically get free tokens on the new network. This means you get a free coin because you were in the right place at the right time.

How do you calculate gains and losses in crypto?

You calculate crypto profit by subtracting the selling price from the cost price of the cryptocurrency. That is one of the simplest ways to calculate your profit and loss.

How does cryptocurrency gain or lose value?

Cryptocurrency gains value if the demand for it is higher than the supply. When a cryptocurrency is useful, people want to own more of it, driving up the demand. Since people want to use it, they don’t want to sell it. This means there is more demand than supply and the value increases.

How is crypto CGT calculated?

If you dispose of a share or cryptocurrency, you are liable for tax on the capital gain you have made. Capital gain or loss is calculated by finding the difference between the cost base and the price you sold the asset for (or its value at that time).

How do you keep track of cryptocurrency trades for taxes?

Your capital gains and losses from your crypto trades get reported on IRS Form 8949. Form 8949 is the tax form that is used to report the sales and disposals of capital assets, including cryptocurrency. Other capital assets include things like stocks and bonds