Understanding Crypto Profit Calculation
Basic Formula
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Profit = (Sell Price × Quantity) - (Buy Price × Quantity) - Fees
ROI = (Profit / Initial Investment) × 100
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Break-Even Price
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Break-Even = Total Cost (including fees) / Quantity
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Example Calculation
| Bought | Price | Investment |
|---|
| 0.5 BTC | $40,000 | $20,000 |
| Fees | - | $50 |
| Total | - | $20,050 |
If BTC is now $50,000:
- Current Value: 0.5 × $50,000 = $25,000
- Profit: $25,000 - $20,050 = $4,950
- ROI: ($4,950 / $20,050) × 100 = 24.7%
Tax Considerations
Short-term vs Long-term Gains
- Short-term (< 1 year): Taxed as ordinary income
- Long-term (> 1 year): Lower capital gains rates
Important Records to Keep
1. Date of purchase
2. Purchase price and quantity
3. Date of sale
4. Sale price and fees
5. Exchange records
Investment Strategies
Dollar Cost Averaging (DCA)
Invest fixed amounts regularly to reduce volatility impact.
HODL
Hold long-term regardless of short-term price movements.