The cost-tracking method is very different from the similarly named cost-basis method. This is best explained with an example:
Let's say you bought 10 XRP on Coinbase for 1000 USD on 1/1/2020 and another 10 XRP on Binance for 500 USD on 2/1/2020.
Now, you want to sell 10 XRP on Binance for 100 USD.
What is the cost of these 10 XRP?
It might be intuitive to think that the cost is 500 USD since you bought the coins for this much on Binance. However, tax authorities allow (or sometimes require) you to use a universal pool when determining your costs as well.
When using a universal pool, it doesn't matter where you bought the coins. They are treated as a single lot. So, if you were using FIFO and a universal pool, your cost would be 1000 USD since you bought the coins on Coinbase first.
However, if you had enabled "Wallet-based cost tracking" in your Settings, then your cost would have been 500 USD:
As you can see, the cost basis tracking method you use may significantly impact your profit/loss calculations.
🟡 Note: If you're not sure if you can use wallet-based cost tracking, consult it with a crypto tax accountant.
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