What is Cost Basis?
The original purchase price of an asset, used to calculate capital gains for tax purposes and to measure the profitability of a position.
Cost basis is the total amount you paid to acquire an asset, including purchase price and any fees. It is the reference point for calculating profit/loss and is critical for tax reporting in most jurisdictions.
Simple cost basis:
Buy 0.5 BTC at $40,000 = cost basis of $20,000 (or $40,000/BTC).
Average cost basis (multiple purchases):
| Purchase | BTC Amount | Price | Cost |
|---|---|---|---|
| Jan | 0.1 BTC | $40,000 | $4,000 |
| Mar | 0.1 BTC | $35,000 | $3,500 |
| May | 0.1 BTC | $25,000 | $2,500 |
| Total | 0.3 BTC | — | $10,000 |
Average cost basis = $10,000 / 0.3 = $33,333/BTC
DCA and cost basis:
Dollar-cost averaging directly improves your cost basis during downtrends — you buy more BTC per dollar spent when prices are lower. Over a bear market, systematic DCA typically results in a cost basis well below the average price during that period.
→ [Calculate your DCA average cost](/calculators/bitcoin-dca-calculator)
Tax implications:
Most jurisdictions tax the difference between your cost basis and your sale price as capital gains. Methods vary (FIFO, LIFO, specific identification) — consult a tax professional for your specific situation.
Cost basis tracking:
Exchanges provide transaction history exports. Tax software (Koinly, CoinTracker, etc.) can import these and calculate cost basis and gains automatically.
Related Calculators
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DCA
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