Basically, if you have a transaction that is withdrawing/trading/sending more coins than the balance in your wallet then Koinly has no way of knowing the cost of those extra coins. For ex. say you have 2 transactions in your Coinbase wallet:

Here, when Koinly tries to calculate the cost of your 8 BTC, it only has the previous transaction of 5 BTC to work with, so it only knows that the cost of 5 BTC is $5000. The cost of the remaining 3 BTC is unknown because there is no transaction that deposits another 3 BTC in your wallet.

So, Koinly assumes you got the 3 BTC for zero cost - this is the recommended approach when it comes to tax documents.

The warning message shows you the total gain you have made from transactions that have such errors.

Your tax report is accurate even with this warning and if you are happy with your capital gains - there is nothing more you need to do.

However, if you see that you will end up paying a lot more taxes due to these errors then it's worth going over the transactions that are in need of review and fixing the ones that are resulting in massive gains. Learn more.

If the sale price of the zero-cost assets is quite small then ignoring the warning may be a better option as it won't have a significant impact on your tax report. You may also ignore the errors if your capital gain for the year is already negative since fixing the errors will only increase your losses further.

🟡 Note Koinly assumes a zero-cost basis for coins that do not have a deposit/trade backing them - this is the recommended approach for tax purposes.

No. Koinly uses zero cost basis for coins that do not have proof of purchase. This is what tax authorities recommend as it means you pay tax on the full amount when you sell the coins (without deducting any costs).