The huge amount of interest and allure of cryptocurrencies has led to new revenue flooding into the crypto market. Despite this uptake in in popularity, for new comers the industry can be intimidating.
This is due to the complex nature of cryptocurrencies – requiring a high degree of technical skill to get the job done. Although many people are making a decent return on their investments, it’s important to understand how you could end up making gains or losses in your crypto portfolio.
How To Calculate Your Cryptocurrency Returns
It is accepted that there are 2 ways that you can calculate the amount of gains in your cryptocurrency portfolio.
Real, ‘Fiat’ Dollars
This helps you to evaluate your gains and losses using an accepted currency, with the most bought being the United States dollar, Great Britain Pounds, Euros, and the Yen.
This method is the quickest way for you to calculate your profits as you will get a feel for the value for each of the coins you are buying. As an example, if the market price of Bitcoin is $10,000 and you are looking to buy 1k worth of Bitcoin, then you’d end up with 0.10 BTC for that amount.
On the other hand, if the price of BTC goes up by 50% to $30,000 each, then the value of your coins will have also increased by 50%. In other words, you would end up with a net profit of $500 USD if you sold off all your Bitcoin and cashed out.
It should be noted that there are more than 1,500 coins available in the crypto market and htat most of them cannot be bought using ‘real world’ money. The only way to buy most of these coins is through trading Bitcoin for these other cryptos. So, Bitcoin is pegged to all other coins, and is a gateway into the world of cryptocurrencies.
Altcoins are all other coins and tokens with the exception to Bitcoin. They are alternatively-purchased coins, hence their name.
Stacking up the gains and losses in Bitcoin is one of the most accurate means for evaluating the worth of your investments. This process should also measure the opportunity cost of holding on to Bitcoin, as opposed to trading Bitcoin for altcoins.
Opportunity Cost of Trading
An opportunity cost measures the potential profit that you could have got from a trade but substituted for a different course of action. One example is when you trade a base currency of Bitcoin or Ethereum to acquire an altcoin. The cost here in terms of opportunity is that you will lose the potential gains of holding on to your coins if they soared in value relative to your other investments. So, you’d be better off keeping your investments in these currencies than buying new altcoins.
The key purpose of you investing in altcoins to make a profit, and more importantly, a better return than what you’d get from buying Bitcoin. This means that your losses and gains need to be measured against Bitcoin, as each other crypto is traded against it. One unit of BTC is known as a Satoshi, which was termed in honour of the Bitcoin Founder, Satoshi Nakamoto. One Satoshi is the smallest unit of a Bitcoin; 100,000,000 Satoshi for each coin.
Let’s say that you bought a coin that is worth $0.25 each, and that it doubled in price to $0.50. You might feel elated to have doubled your original investment, which would mean that you earned a gain of 100%.
On the other hand, if Bitcoin ended up tripling in price and you used your original BTC to buy an altcoin, then you would have lost one Satoshi in value. This means you would have been better off holding onto your Bitcoin instead of purchasing the altcoin.
Calculating Your Crypto Gains from Satoshis to USD
It can be confusing to calculate the amount of games you made in Satoshis as the volatility of the Bitcoin market means that it can be difficult to know how much a coin is worth.
However, there are a few tools you can use to make the job easier:
- Bitcoin Price Converter
- BTC Satoshi