What’s The Difference Between FIFO, LIFO, And Specific Identification In Crypto Tracking?

Every crypto investor eventually faces an important question: When I sell my crypto, how do I determine which coins I have actually sold?

Because each of these digital assets is purchased at different times and prices, accurate tracking becomes important. Such tracking involves cost basis methods that will determine how you calculate crypto gains, how you evaluate performance, and how you may go about preparing necessary tax or accounting reports.

Following are three major cost-basis methods used worldwide:

• FIFO (First In, First Out)

• LIFO (Last In, First Out)

• Specific Identification

Each approach works differently, and these differences result in various outcomes.

Understanding Cost Basis in Crypto Tracking

Cost basis is generally the purchase value of a cryptocurrency asset. Since most investors buy the same coin multiple times at various prices, they will have multiple “lots” of the same asset.

When they subsequently sell some of their holdings, they have to decide:

Which lot is considered sold?

This choice determines the:

• Gain or loss recorded

• Holding period

• Financial outcome

• Taxes owed (if any)

That is why choosing the right cost-basis method matters.

FIFO - First In, First Out

What FIFO Means

FIFO assumes that the oldest crypto you purchased is the first crypto you are considered to have sold.

How FIFO Applies to Crypto

If you accrued coins over time, FIFO will always treat your oldest buys as sold first, even when the prices of later buys are significantly different.

Why Investors Use FIFO

• It is uncomplicated and universally known.

• It is accepted by most tax authorities around the world.

• It is the default method in many crypto-tracking platforms.

It requires minimal record keeping compared to other techniques.

How FIFO Affects Crypto Gains

Older coins in rising markets have often been purchased at lower prices, so selling them first usually means higher reported gains that can affect your overall financial results.

Advantages of FIFO

• Easy to implement

• Highly transparent

• Suitable for investors with fewer transactions

• Universally accepted

Drawbacks of FIFO

• Often results in higher reported gains in bull markets

• Less strategic flexibility

LIFO: Last In, First Out

What LIFO Means

LIFO assumes that the most recently acquired crypto is the first one sold.

How LIFO Applies to Crypto

If you are buying coins regularly at newer, higher prices, LIFO would consider these newest acquisitions as the ones you sell first.

Why Some Investors Prefer LIFO

• In rising markets, the newer purchases are usually more expensive.

• Selling newer, more expensive coins almost always produces lower reported gains.

• It can assist in gain minimization if the regulations permit.

Limitations of LIFO

• Many countries do not allow LIFO for crypto reporting.

• It is considered more suitable for business inventory rather than investments.

• Can be confusing when combined with other techniques.

Pros of LIFO

• Can reduce reported gains in rising markets

• Offers short-term flexibility in some accounting scenarios

Cons of LIFO

• Often not allowed for tax reporting

• Potential compliance risks

• Not supported by all crypto platforms

Specific Identification (Spec ID)

What Specific Identification Means

Specific Identification lets you choose precisely which crypto lot you want to sell. This gives you the most control and highest level of accuracy.

How Specific Identification Works in Crypto

Investors using Spec ID must keep detailed records for each purchase lot, including:

• Date and time of purchase

• Purchase price

• Wallet or exchange utilized

• LOT-specific identifiers:

They do decide exactly which lot they are disposing of when selling.

Why Investors Choose Specific Identification

• It provides the highest degree of strategic control.

• You can elect to sell the higher-cost coins to minimize crypto gains.

• You can select coins that qualify for long-term holding periods.

• It can be used for harvesting losses or optimizing financial planning.

Yet, this approach requires very precise, meticulous recordkeeping.

Advantages of Specific Identification

• Maximum flexibility for financial planning

• Minimize gains or time strategic gains

• Helpful for active traders and long-term planners

Disadvantages of Specific Identification

• Requires heavy documentation

• Hard to maintain across multiple wallets and exchanges

• Not all tracking tools support lot-level selection

Comparison Table: FIFO vs LIFO vs Specific Identification