Accumulation of earnings in digital assets can occur through diverse means, encompassing long-term investments, trading, scalping, and mining.
Cryptocurrency profit calculations require straightforward math, yet nuances should be considered before determining gains and losses.
This piece delves into the methodology of determining cryptocurrency profits and introduces useful tools for monitoring your investment portfolio.
Simple Mathematics
Calculating cryptocurrency profits is not rocket science. It follows the basic concept of calculating gains and losses in mathematics.
However, before calculating the final profit, you need to consider other factors, such as the current market price of the cryptocurrency, exchange fees, gas fees, investment charges, etc.
Now, let’s review how to calculate cryptocurrency profits. Generally, you use a fiat currency like the dollar or Euro to calculate the profits.
Say, for example, you bought 2 Bitcoins (BTC) for $20,000 and sold them for $40,000. The profits will be the difference between the selling price of Bitcoins and the cost price of Bitcoins.
Here, Selling price of 2 BTCs = $40,000 Cost price of 2 BTCs = $20,000 Profit = $40,000 – $20,000 = $20,000
This is the simplest way to calculate cryptocurrency profits. But, please note that $20,000 is the gross profit but not the net profit. To determine the net profit, you must deduct other associated costs incurred during the time of trading.
When you trade on a cryptocurrency exchange, you may incur trading fees. These fees are paid when you transfer cryptocurrencies to the customer or to the liquidity provider or conduct a transaction on the cryptocurrency exchange.
Therefore, while calculating net profit, you must deduct the exchange fees from the gross profit. For example, let’s say your transaction fee is 3%.
Total sales = $40,000 Total cost = $20,000 Gross profit = $40,000 – $20,000 = $20,000 Transaction fees = 3% of total sales = 3% of $40,000 = $1200 Therefore, Net profit = Total profit – fees = $20,000 – $1200 = $18,800
Also read: How To Buy Polygon Crypto?
Profit Calculators
Investors who engage in the trading of various cryptocurrencies frequently rely on crypto profits calculators to swiftly assess their gains and losses.
- The Coinmash calculator offers a user-friendly setup for quick calculations of crypto profits. Input your investment amount, the currency used, the purchased token, and the acquisition date to obtain results displaying the purchase price, current price, return on investment (ROI), and current value.
- The Easy Bitcoin Calculator, similar to the aforementioned tool, aids in the computation of profits and losses related to Bitcoin investments. Input the cost price, selling price, total number of Bitcoins, and transaction fees for a comprehensive calculation. Additionally, this calculator provides options for both long and short methods to determine profits.
Calculating Crypto-to-Fiat Profits
When evaluating profits in the context of cryptocurrency and fiat exchange, it’s essential to factor in the exchange rate dynamics between the two currencies. Traders need to make strategic decisions on how much of each currency to hold and when to execute transactions for optimal profit maximization. Additionally, the impact of transaction fees and network fees imposed by exchanges should be taken into account before arriving at the final profit figures. To facilitate this analysis, there are specific calculators available:
- CryptoMarketCap Calculator: This tool simplifies the calculation of cryptocurrency conversions to and from fiat currencies. Input the quantity of currencies, choose the preferred fiat or cryptocurrency, designate the currency for conversion, and the calculator will furnish the corresponding price. Supported cryptocurrencies include BTC, BNB, XRP, ETH, DOGE, USDC, Polkadot, among others. Likewise, you can convert them into a variety of fiat currencies such as USD, AUD, ARS, ALL, BDT, BYN, and many more.
- Currexy: Currexy offers a cryptocurrency converter that enables users to select a specific coin and convert its value into USD, EUR, or other fiat currencies. The tool provides additional features, allowing users to examine currency charts and prices while making comparisons with other currencies. By entering the desired cryptocurrency in the currency field, choosing the target conversion currency, users can promptly view the conversion results.
Calculating Cryptocurrency Mining Profits
Bitcoin mining comes with substantial expenses, particularly related to the inherent costs tied to the mining procedure.
For profitability, the mining value must surpass the expenses involved in mining Bitcoins or alternative cryptocurrencies.
When engaging in cryptocurrency mining, miners confront operational expenditures, encompassing electricity consumption and the outlay for establishing a computer system.
The electricity cost is contingent upon the miner’s geographical location, while the overall expense factors in hashing power, total watt consumption, and pool fees associated with staking or mining cryptocurrencies.
Mining calculators prove useful in determining potential profits:
- BTC.com: This platform provides real-time data on mining pool hash rates. The associated mining pool calculator delivers insights into network hash rates, electricity costs, overall expenses, profit ratios, and anticipated mining profits.
- CryptoCompare Calculator: CryptoCompare facilitates the mining of various coins such as BTC, ETC, ETH, XMR, DASH, LTC, and ZEC. Users can compute the daily profit ratio, mining costs, power consumption in watts, pool fees, and project profits on a daily, weekly, monthly, or yearly basis.
Calculating Profits on Crypto Taxes
Profits on cryptocurrencies, like any other income generated, are taxable. Though profits or incomes generated on cryptocurrencies are considered passive income, many government agencies, financial and tax collecting agencies consider them taxable income.
Your tax liability will depend on certain factors such as:
-
The area where you reside. Taxes will be calculated based on the tax laws of the country.
-
The amount of cryptocurrencies sold.
-
The date of sale.
-
The fiat value during the time of acquisition or sale.
Crypto asset profits are taxable based on proceeds minus cost basis.
For instance, if cost basis is $5,000 and proceeds are $10,000, profits amount to $5,000.
Taxes apply only to net profits, not entire proceeds.
Holding crypto assets longer reduces taxes compared to short-term holdings. Long-term holdings are more profitable.
Traders are exempt from capital gains tax on losses. Various crypto tax calculators, such as Crypto Trader Tax, pull data from mining pools and exchanges to calculate capital gains or losses, generating income and tax reports.
Conclusion
Trading in cryptocurrencies has the potential for significant profits, but it comes with inherent risks given the unpredictable market dynamics.
Therefore, it is recommended that investors, particularly those new to the field, carefully assess their gains and losses.
Utilizing free online profit calculators can prove beneficial, offering a quick and accurate way to calculate profits within minutes, without any hassle.