What is FIFO (First In, First Out) in crypto and accounting? How it works and why it matters
FIFO (First In, First Out) is an accounting method used to track the cost basis of assets by assuming that the earliest purchased (first-in) assets are the first ones sold (first-out).
In crypto trading, FIFO is commonly used for tax reporting, where the oldest coins bought are considered sold first when calculating gains or losses.
For example:
- You buy 1 BTC for $10,000 in 2020.
- You buy 1 BTC for $30,000 in 2021.
- You sell 1 BTC for $40,000 in 2023.
Under FIFO:
The first BTC bought ($10,000) is sold first, resulting in a $30,000 taxable gain ($40,000 - $10,000).
How FIFO works in crypto taxation
When calculating capital gains under FIFO:
- Identify the first-acquired assets in your transaction history.
- Match them to the first-sold assets during withdrawals or trades.
- Calculate the profit or loss by subtracting the original purchase price from the selling price.
Since older crypto holdings are often purchased at lower prices, FIFO typically results in higher capital gains taxes in a rising market.
FIFO vs. other cost basis methods
| Method | How It Works | Effect on Taxes | Common Use |
|---|---|---|---|
| FIFO (First In, First Out) | Oldest assets sold first | Higher gains in bull markets | Crypto tax reporting |
| LIFO (Last In, First Out) | Newest assets sold first | Lower gains in bull markets | U.S. stock trading (not allowed for crypto) |
| HIFO (Highest In, First Out) | Most expensive assets sold first | Minimizes taxable gains | Advanced crypto tax strategies |
Many tax authorities, including the IRS (U.S.), HMRC (UK), and ATO (Australia), allow FIFO for crypto taxation.
When to use FIFO in crypto
- ✅ Best for long-term investors – FIFO prioritizes selling older assets, potentially qualifying for lower long-term capital gains tax rates.
- ✅ Good for transparent accounting – FIFO is widely accepted by tax regulators.
- ❌ Less favorable in a bull market – Selling older assets bought at lower prices leads to higher taxable gains.
It depends. FIFO is simple and widely accepted, but it may result in higher capital gains taxes compared to HIFO or LIFO.