What it is
Cost basis represents the total amount an investor paid for an asset, including the purchase price and any associated transaction costs like brokerage fees or commissions. It is a fundamental concept for calculating capital gains or losses when an asset is sold. For example, if you buy 1 ETH for $2,000 and pay $10 in fees, your cost basis for that ETH is $2,010.
When an investor sells an asset, the capital gain or loss is calculated by subtracting the cost basis from the sale price. This figure is crucial for tax reporting, as capital gains are subject to taxation. For cryptocurrencies, tracking cost basis can be complex due to frequent trades, different acquisition methods (e.g., mining, staking, airdrops), and varying accounting methods like FIFO (First-In, First-Out) or LIFO (Last-In, First-Out).
Why it matters
Knowing your cost basis is essential for accurately calculating capital gains or losses on investments for tax reporting. Incorrect tracking can lead to tax penalties.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice