The term Crypto ROI, Return On Investment, might sound intimidating at first, but it’s actually quite simple. In fact, you may already be familiar with ROI when it comes to your personal finances or your business, whether you realize it or not! So how do you calculate crypto ROI? Let’s look at how to do this in two main areas of cryptocurrency investing: Fiat-to-crypto investments and crypto-to-crypto investments.
Calculating Crypto ROI
Is it Worth It? If you’re wondering how to calculate a return on investment in cryptocurrency, here’s a simple formula: Invested amount + Profit = Crypto ROI. In other words, you can calculate your crypto return on investment by figuring out how much money you’ve made after selling your coins, minus how much money you invested in getting started.
You can use any digital currency exchange (centralized or decentralized) to convert between fiat and digital currency. To figure out how much profit you’ve made from selling your coins, just check the market value of your coins at whatever exchange they’re currently listed.
Determining the price at which you bought your crypto
To start calculating your crypto ROI, you’ll first need to determine how much of your money is still in crypto. You’ll want to subtract any direct cash outlays (for example, when you bought Bitcoin with a credit card or bank transfer) from your current holdings and add any crypto gifts you received. If that number is positive, congratulations—you have a crypto profit! If it’s not (if it’s negative), we can help by showing you how to convert that loss into taxable income. For example, if you invested $500 but only have $450 left today, that loss of $50 becomes taxable as ordinary income.
Determining the price at which you sold your crypto
Determine your total Profit by calculating how much you sold your crypto for and subtracting that from your original purchase price. So, if you invested $100 in a coin and sold it when it was worth $200, then your return on investment is 100%. Of course, using fiat to buy cryptocurrency isn’t practical; investors usually convert their fiat into bitcoin or another cryptocurrency before purchasing. In that case, we’d add up all of our transactions over time to determine our overall Profit.
Measuring how much Profit you made in crypto
To measure how much profit you’ve made, you need to calculate your return on investment (ROI). Calculating crypto ROI is relatively simple: cost basis x gain/loss. To determine your cost basis, you first have to figure out how much you paid for all of your crypto assets. If you bought XRP at USD 0.20 per unit and are now worth USD 2 per unit, your cost would be USD 400 (20 x 100). Next, simply multiply that number by the current value of XRP, which will tell you how much profit (or loss) you made.
What is ROI in general? Let’s discuss an example.
So, what exactly is the return on investment? Simply put, it’s your Profit divided by your investment. Sounds simple enough, right? Let’s say you buy a stock for $100 and sell it one year later for $200. In that case, your return would be 100% (it doubled), and your ROI would be 50% ($100/$200). In cryptocurrency investing, however, things aren’t relatively as straightforward. Let’s walk through an example together to see how you can calculate cryptocurrency ROI.
We’ll use Bitcoin Cash as our sample crypto in today’s exercise. We bought 1 BTC at USD 1,000 and sold it one year later at USD 2,000: our ROI was 100%. Pretty easy so far! Now let’s take a look at BCH: we invested 0.1 BTC in BCH at around USD 300 per coin when there were only 12 million coins in circulation; we sold those coins when there were 16 million coins in circulation: our ROI was 75%. That may seem like a lower percentage than we expected – why did it happen?
There are a couple of reasons why BCH’s return isn’t as high as BTC’s. First, 16 million is more than 12 million – if you can spot that right away, then kudos to you! This means that BCH has more supply than BTC did when we bought it. Second, BCH started with a higher price per coin than BTC ($300 vs. $1,000), which means our percentage ROI is smaller.
Lastly, like most crypto investments (and many other kinds of investments for that matter), there’s always some risk involved when holding onto your coins for an extended period.
Sure, it’s easy to look at how much money you’ve made or lost in crypto and think that a high return is guaranteed. However, realizing those kinds of gains takes a lot of research and capital—with no guarantee of success.
While you shouldn’t let that deter you from getting involved in crypto investing (or any trading), it should give you pause when considering whether or not your investment is worth pursuing. Before going all-in on a new ICO or token sale, make sure to have a clear idea about what kind of return on investment (ROI) you can expect or want to gain—and plan accordingly. For example Revenue Coin has a clear plan for the future that tells it can give a good ROI in the future. So we recommend checking this out!