How to Measure Profit and Losses with Cryptocurrency? – 2022 Guide

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The world of cryptocurrencies, mainly Bitcoin, has managed to attract a significant amount of interest from all over the globe in 2022. The reason is that their prices skyrocketed during January and February. It is pretty exceptional when you think about it. Just a year ago, the price of Bitcoin has dropped to just $3k. Now we are talking at a price of around $50k.

While many people thought that the reason behind this drop was the global pandemic of COVID-19, it wasn’t like that. The price suffered a drop because every four years BTC performs a price halving to avoid any possible inflation in the future. When you think about it, it is a really smart move. The price needs to be as stable as it can be with all the money invested into the concept every year.

Sure, you have heard about a lot of stories where a certain individual has managed to profit massively on the market. Sadly, we can see that there’s no too much truth in the majority of them. There are more than a couple of things a trader needs before he or she can make the most of it. One of the crucial things is to have quality software. If you wonder what makes this kind of software good, be sure to visit ibtimes.com.au and learn more about the qualities it needs to have.

At the same time, it wouldn’t hurt you to have an understanding about measuring profits and losses. It needs to be said that it is more complex than doing it traditionally since the market has different movements. Therefore, we would like to provide you answers on how you can do that. Plus, we will add some crucial points you will surely need to address. Without further ado, let’s talk about it.

What You Should Use as a Benchmark?

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Even though the cryptocurrency market calculates the profits and losses mostly in fiat currencies, it needs to be said that the whole process is widely different than the one performed by derivate and stock traders. The reason why it is so different is that the market doesn’t have standardized practices. One of the most important questions every trader needs to address is choosing the currency that will be used as a benchmark.

We are talking about three main possibilities, choosing crypto, either ETH or BTC, a particular fiat currency, and choosing a quote/base currency. We are sure that your first guess would be that fiat currencies are the way to go, but there are some things you need to be aware of. The thing is, many exchanges you will come across simply don’t support them. Instead, they are opting for alternative stablecoins, like TUSD, DAI, USDT, etc.

Furthermore, all the alterations of the price will not make it easier for you to measure all the profits and losses you have experienced during a certain period. The ultimate accuracy is pretty hard to achieve with using these. The highest percentage of traders use BTC to measure the performance of their portfolio. In some cases, when people tend to analyze the effectiveness of their strategy, they use base/quote currency. But we wouldn’t advise beginners to opt for them.

Types of Calculators

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For any trader, it is crucial to make calculations about trading profits, losses, and taxes. To do that, you need to choose quality software that will make it possible for you to do so.

Since there are a couple of types for you to choose from, many people would be confused.

Especially when we are talking about traders who have just started participating in the market. So, we would like to provide you with examples of each one of these.

Tax

The first type we would like to introduce you to is a tax calculator. You will need to include all the parameters related to profit. At the end of the process, you will receive an answer about how much money you are required to pay in the form of tax. The best software you should use for this process by far is CryptoTrader.Tax. Within this one, you will be able to have an insight into all the aspects of the process. Certainly, this is the best option both for newbies and professionals.

Crypto Trading Profit

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For you to calculate your profit, you will need to perform a couple of manual calculations. When you buy a coin at $5k and you sell it for $17k, you will see that your profit comes at $12k. Naturally, you don’t need to do it all by yourself. Instead, you can choose one of the calculators that can help you with these calculations. The simplest ones are the Easy Bitcoin calculator and Sabe calculator. Thankfully, you can use some specifics related to your strategy.

Crypto-to-Fiat, Crypto-to-Crypto

Now, we would like to discuss the commonest type of calculators that you will come across. We are talking about crypto-to-crypto or crypto-to-fiat. We believe that their name speaks enough about what you can expect from them. When talking about the best choices, in our opinion, you should choose between Currexy and CoinMarketCap. Without a doubt, these will provide you with all the things essential for calculating your profits and losses. You just need to enter the exact amount of ETH or BTC and you will receive the information about an equivalent of the amount in any currency you have chosen.

Mining Profitability

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Without any doubt, when you start mining cryptos, there are a couple of factors you will need to take into consideration. Especially when it comes to estimating your profits and losses. We are talking about the resources that you will spend on cost per kWh and watts consumption. At the end of a certain period, it wouldn’t hurt you to analyze all these factors. The most efficient mining profitability calculators are the BTC.com Mining calculator, and CryptoCompare calculator. Certainly, we are talking about probably the most complex types of calculator since it offers so many possibilities.

Summary

We are sure that the process of measuring profits and losses is pretty hard, especially for those who are new to the market. Here, we’ve provided you with all the important facts you need to know about it. We are sure you’ll find it useful.