How To Calculate Cryptocurrency Profit
Millions of people around the world generate healthy profits from trading, swapping, and mining cryptoсurrencies. One way or another, it’s a profitable sector and a prosperous industry.
Even with ups and downs — that the whole cryptocurrency industry invariably goes through — savvy traders usually come out with a profit. One of the main challenges, even for experienced traders, is understanding how to calculate cryptocurrency profits.
Because cryptocurrencies always go up and down, it’s crucial to diversify a portfolio. It usually makes sense to hold some of the largest and most popular cryptocurrencies, such as Bitcoin (BTC), Ethereum (ETH), Bitcoin Cash, Ripple, and several others. Alongside these, it is good to diversify as much as possible — aiming to benefit from new opportunities whenever they come along — such as ICO’s and IDO’s and therefore new coins and cryptocurrencies.
Whether you are buying or selling, trading, swapping, exchanging or mining, it’s crucial to know how to calculate profits. In this article, we look at the easiest ways to do that, so that you can have a clear idea about how much profit you have made from every transaction.
How to calculate crypto trading profits
Fortunately, for those buying and selling cryptocurrencies, the basic principles of calculating profits are quite simple. There’s a price you buy the crypto for and the price you sell it at.
Say you bought two Bitcoins (BTC) for $25,000 and you sell them for $35,000, then the Gross Profit is $10,000. With every crypto profit calculation, the first thing you need to do is know the number of coins you are buying and the price. Then when it comes to selling, you should note the number you are selling and the price at the time of that transaction.
As you can choose to hold however much crypto, to keep in a portfolio or for a rainy day, you may not be selling as many as you bought. However, for the purposes of calculating profits, let’s assume you sell both BTC for $35,000, as per the example above.
The profit you make isn't the full $10,000.
There are always fees and other costs to consider, depending on the way you sell them, such as on an exchange. Every exchange — whether centralized or decentralized — charges different fees.
Exchange fees can include any of the following, as described in ChangeNOW FAQs:
- Network fee for the deposit transaction from a customer's wallet;
- Network fee for transferring coins to our liquidity provider;
- Trading fees that our liquidity providers charge;
- Network fee for sending the exchanged funds to the customer.
Traders can buy, sell, and exchange crypto on ChangeNOW, and our policy and approach to these fees is to ensure we find the fastest and most user-profitable way to execute an exchange. It is crucial to us that the final amount you receive is as close to the estimate as possible. That's why we calculate all the possible fees for every transaction very thoroughly and include them in the estimate.
Which means, with ChangeNOW, you are never going to be stung with high fees when buying and selling crypto. Regardless of the exchange and therefore the way you buy and sell crypto, there are always fees to consider. Other fees you are likely to encounter when trading cryptocurrency include gas fees, exit fees, and investment fees.
So let’s say the average total of those accumulated and largely unavoidable fees are 3%, then you need to take that off the Gross Profit. Therefore, let’s apply that to the above example:
Buy 2 x BTC = $25,000.00
Sell 2 x BTC = $35,000.00
Gross Profit = $10,000.00
Fees: - 3% (of the total sale price) = $1,050.00
Net Profit (Gross - Fees) = $8,950.00
What if you are someone who trades a lot every day? Some traders are juggling dozens or hundreds or more transactions every day. Constantly buying and selling to benefit and profit from any number of micro price fluctuations.
It would make sense to get a calculator specifically designed around the needs of crypto traders. A calculator, which pulls data in real-time from CoinMarketCap, to ensure you know how much has been gained or lost when transactions are happening, thereby keeping profit margins clear.
South Korea is one of many countries seeking to tax crypto profits more effectively, according to AZCoin News.
Here is another example of a handy, easy-to-use crypto profit calculator. Having one of these open at all times makes it simple when it comes to working out the profits as you are trading.
Calculating exchanging crypto-to-fiat profits
Because cryptocurrency is, at the end of the day, another form of currency, calculating the rate of exchange between any fiat currency and any crypto is fairly simple. In the same way that calculating the exchange rate between USD$ and Euros (EU€) can be done quickly and easily using Google Calculator and numerous other platforms and apps.
Other ways to do this include the CoinMarketCap calculator and Currexy, as a way of working out exchange rates between crypto and fiat currencies. Yet again, fees always need to be factored into the overall profits you come out with.
When transferring from fiat to crypto, or the other way round, there are always profits to be made. Providing you buy and sell at the right time. Knowing when to hold and when to sell is the key to making healthy profits. Once you've calculated the relevant fees, depending on the exchange — whether centralized or decentralized — then you will have a Net Profit figure.
Calculating mining profits
Mining cryptocurrencies or pre-ICO or IDO tokens is somewhat different than simply buying and selling already established cryptocurrencies. You can of course do that too, and millions of people do. Mining Bitcoin (BTC) and other crypto’s is a route to generating profits, but it isn't as easy and requires more investment than simply buying and selling cryptocurrency.
There are two ways to approach this. You can either mine an already established cryptocurrency, or you can stake (which means make a small investment) and offer to mine a pre-ICO or IDO token, which means one that hasn't launched. This does make it potentially more risky, especially before lock-in periods end, the tokens are available and compatible with exchanges, and you can start selling/exchanging these coins for other cryptocurrencies.
When mining any cryptocurrency or coin, there are a number of initial and ongoing costs to think about first. Long before any profits are generated.
Firstly, you need a powerful computer or rig. The more powerful the better, and therefore, more expensive. You need one with as much hashing power as possible.
Ongoing costs include the power consumption in watts, running costs for every kWh, total electricity costs, and then pool fees. Plus, if you are mining a pre-ICO or IDO token, then you usually have a staked and locked-in minimum investment required (either in fiat or another cryptocurrency).
Once you’ve deducted all of those costs, then you will have a profit. One of the best ways to work this out is to use the BTC.com Mining Calculator, or CryptoCompare Calculator. Use these to input a number of cost factors, and then have them generate profit figures.
Cryptotax calculator is another useful tool for working out crypto taxes.
How to calculate taxes on crypto profits
Whether you are mining, trading, buying, selling, or investing in cryptocurrencies, it’s widely accepted around the world that this is a form of income. Although crypto largely operates outside of the traditional financial services sector, most governments and tax collection agencies recognize it as a form of taxable income.
Consequently, you need to work out how much tax is likely to be payable on profits so you can start setting it aside. You can get an understanding on this based on a number of factors. Ultimately, it always pays to speak with an accountant. Like with any business or income generating activity, profits are also offset by any losses, and of course costs encountered in the process of earning the top-line figure.
How much you are taxed also depends on where you reside most of the time (and tax rates in that country), where any legal entities are registered, and a wide number of other factors. You can read more on crypto taxes in How Is Crypto Taxed in 2021.
Making sure you understand the profits on crypto mining, investing, buying, and selling is fairly easy to calculate. As long as you deduct all relevant costs, then profits are simple to figure out.
Are you looking to invest in cryptocurrency, or implement fast and safe crypto swaps?
Disclaimer: ChangeNOW does not provide investment advice. Cryptocurrencies are currently unregulated, which means every time you invest, your capital is at risk. Past performance is not an indication of guaranteed future price increases.
However, we put every effort into ensuring every transaction and exchange is secure, internally and working with partners, such as Simplex. ChangeNOW seeks to maintain accountability to its customers, employees, and the broad crypto community. We do it through strict AML compliance, social change encouragement, regular service quality upgrades, and community involvement.