What is Average Cost for Bitcoin and Crypto Tax? When is it Used?
Average Cost and Adjusted Cost Basis
With the average cost accounting method, the cost basis is calculated via the average price you paid for all units of a specific cryptocurrency, and this average is the cost basis for every single sale of that crypto. across all your assets.
This accounting method is required in the U.K. and Canada and is supported by TokenTax; it is not used in the United States. For the United States and other countries that don't require or don't allow average cost, see our article on FIFO, LIFO, and Minimization.
Here’s an example:
You buy 1 BTC in 2017 for £3,000
You buy 1 BTC in 2018 for £7,000
You buy 1 BTC in 2019 for £11,000
When you later sell that 3 BTC after making these purchases, your cost basis is £21,000 / 3 = £7,000. If you traded other cryptocurrencies for Bitcoin, then the cost basis number used is the fair market value of those assets when they were sold for the Bitcoin.
TokenTax does the work so you don’t have to.
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