Help! Why is record-keeping for crypto so difficult?!
With millions of different blockchains, tokens, asset types, and projects, it’s no surprise that record-keeping for crypto can be a nightmare.
The crypto industry is one of the newest financial markets in the world and has experienced hyper-growth in the last few years. However, the speed of this innovation comes with added complexities. If you’re trying to maintain records of crypto activity for SMSF purposes, tax purposes, or even just portfolio management purposes, it can get very complicated very quickly. Let’s look at why it’s so complicated, and what you can do to ease the pain.
Crypto users can vary from someone who just bought a single token off of a centralised exchange, to someone who has hundreds of different accounts which are interacting with several protocols at any given time, to even more complex examples. As an example, if a user has bought a crypto token from a centralised exchange using fiat currency, then has swapped that token for another, then has staked that token in a protocol; there are already several actions that need to be recorded. How would you establish a cost basis for the original token at the time of purchase? Was there any gain or loss when the token was swapped for another? Has ownership changed when the token was staked in a protocol? All of these are questions that need answers in order to maintain accurate crypto records.
If done manually, a user would have to search through historical price data in order to establish a cost basis for the original token they bought. To do so, they would need to interact with a pricing oracle and/or blockchain explorer. Similarly, in order to see if there was any gain or loss upon executing a CGT event, the user would need to trawl through historical price data and manually calculate any differences. Crypto pricing oracles and blockchain explorers are not user-friendly at the best of times. The difficulty of record-keeping for crypto is a result of this, combined with the fact that there is the potential for so many transactions to happen in a short space of time.
If you’re someone who doesn’t want to go through the pain of manually keeping records for each and every crypto transaction relevant to your SMSF, then luckily there’s a solution for you: CryptoTaxCalculator. We’ve built our software to interact directly with the blockchain so that you can import data from any source relevant to an SMSF’s crypto holdings. Our platform will automatically track and help you categorise cost basis, fees, and any gains or losses made. Our Inventory Report will also help with year end SMSF valuations required for Financial Reporting. Interested in trying it out? Visit our website to find out more.