First In, First Out (FIFO)

First In, First Out (FIFO) is a method used in cryptocurrency accounting to determine the order in which assets are bought and sold. According to FIFO, the first cryptocurrency asset purchased is considered the first one sold when disposing of assets. This method assumes that assets are sold in the same order they are acquired.

Example:

Suppose an investor buys three Bitcoin at different times:

1. Bought 1 Bitcoin at $10,000.
2. Bought another Bitcoin at $12,000.
3. Bought the third Bitcoin at $15,000.

If the investor later sells two Bitcoins when the price reaches $20,000, FIFO dictates that the Bitcoin bought first (at $10,000) and the second Bitcoin (bought at $12,000) are considered sold first. This means the cost basis for the two Bitcoins sold would be $10,000 and $12,000, respectively.

Case:

An investor purchases 5 Ethereum at different prices over time:

1. Buys 2 Ethereum at $200 each.
2. Buys 1 Ethereum at $250.
3. Buys 2 Ethereum at $300 each.

If the investor later sells 3 Ethereum when the price reaches $400, FIFO requires that the first 2 Ethereum bought (at $200 each) and 1 Ethereum bought at $250 are considered sold. Thus, the cost basis for the 3 Ethereum sold would be $200 (for each of the first 2) and $250 (for the third one).