When it comes to Bitcoin, the concept of cost basis is important to understand. In short, your cost basis is the original value of an asset for tax purposes.

For example, if you bought a Bitcoin for $1,000 and then sold it later for $10,000, your cost basis would be $1,000 and your capital gain would be $9,000.

The cost basis is important because it determines how much tax you will owe on a capital gain. If you have a long-term capital gain, you will owe taxes at the long-term capital gains tax rate, which is currently 20%.

However, if you have a short-term capital gain, you will owe taxes at your ordinary income tax rate, which could be as high as 37%.

As you can see, it can be quite beneficial to have a lower cost basis. Unfortunately, when it comes to Bitcoin, there is no definitive answer as to what your cost basis should be.

This is because there is no centralized exchange where you can buy and sell Bitcoin. Instead, it is traded on a number of different exchanges and each exchange has its own price for Bitcoin.

This lack of a centralized exchange makes it difficult to determine an average cost basis for Bitcoin. However, there are a few methods that people use in order to try and calculate their cost basis.

The most common method is to take the price of Bitcoin on the day that you purchased it and divide it by the number of Bitcoins that you bought.

For example, let’s say that you bought 1 Bitcoin for $5,000 on January 1st. On February 1st, the price of Bitcoin increased to $6,000.

Using the method described above, your cost basis would be $5,000/$6,000=0.83 Bitcoins.

Another method that people use to calculate their cost basis is called the first-in first-out (FIFO) method. With this method, you simply take the price of the first Bitcoin that you purchased and divide it by the number of Bitcoins that you currently own.

For example, let’s say that you bought 1 Bitcoin for $5,000 on January 1st and then 2 more Bitcoins for $6,000 on February 1st. Using the FIFO method described above, your cost basis would be $5,000/3=0.

67 Bitcoins.

The final method that we will discuss is called the specific identification method. With this method, you choose which specific Bitcoins you want to sell and then calculate the cost basis accordingly.

This method can be useful if you want to minimize your capital gains taxes or if you believe that certain Bitcoins will increase in value more than others.

For example, let’s say that you bought 3 Bitcoins for $5,000 on January 1st and then 2 more Bitcoins for $6,000 on February 1st. Let’s also assume that you believe that one of the Bitcoins from January 1st will increase in value more than the others.

In this case, you could choose to sell just 1 Bitcoin from January 1st and 2 Bitcoins from February 1st. Using this method would give you a cost basis of $5.