If you are investing in crypto, you are doing it to make a profit. So, naturally, it makes sense to want to know how much profit you are making.
Of course, how much profit that is depends on a range of factors.
This includes your initial investment, the value of the cryptocurrency you are invested in, and the health of the crypto market overall.
This can be confusing, especially with cryptocurrency being so volatile, but there are ways to get a general idea of the profit you can expect to receive.
This guide will explain how.
You might be new to crypto and hope to understand how to profit from an investment.
You might have already invested and want to know how much you have profited.
Whichever it is, keep reading to find out how to calculate crypto profit.
Is Crypto Trading Profitable?
Firstly, it’s important to understand that cryptocurrency is a high-risk investment.
Like investing in stocks, investing in crypto is a gamble, and a gut decision, based on reading the market and predicting surges in demand and price.
Whether that’s done logically or by luck, cryptocurrency trading can have the potential to be highly profitable in the long term.
So, if you are new to crypto trading, it’s worth knowing that it is a long-term investment.
Don’t expect big or easy profits right away. Because if that was the case, everyone would be investing!
But like any investment, it’s good to know as much as you can about what you are investing in, and how to go about it, to stand the best chance of turning a profit in the long run.
What Determines The Value Of Cryptocurrency?
The price of any cryptocurrency investment is what you pay, while the value of the cryptocurrency is what you get.
Both of these change depending on a variety of factors, which makes it hard to determine the real value of cryptocurrency.
Ultimately, cryptocurrency is priced and valued on demand.
Demand drives these parameters up or down, based on how much is being invested and the volume of these investments.
Supply, on the other hand, is how much crypto is being mined and circulated, together with how much is currently being sold by crypto traders.
Due to being decentralized, crypto price and value are volatile. Investment is purely speculative and it takes both guts and logic.
It’s possible to look at cryptocurrency as a new kind of minable gold or silver – but in digital form.
Its value can be used to make a profit, depending on the ongoing state of supply and demand.
How Do You Calculate Crypto Profit?
So, how do you calculate crypto profit?
It’s easy to see the current price of cryptocurrencies – whether that’s BTC, ETH, LTC, USDT, or any form of crypto – but difficult to determine its current or future value in terms of profit.
Of course, it’s possible to simply invest before a bullish trend and cash out at a peak in demand and price.
Profits might be small, but you would still make a profit.
However, if you’re looking to get serious with profit-making crypto investment, it gets a little more technical.
The simplest way is to subtract the current selling price from the cost of the cryptocurrency you initially invested.
With this formula, your total profit would be the difference between what you sold and what you initially paid.
This profit is known as ROI – your return on investment.
You can then do a few simple calculations to measure the profit or gains in terms of percentage.
Percentages, in particular, can be useful for measuring profit in relation to how much you want your ROI to be.
Another method is to use an online crypto profit calculator.
These simple tools do the math for you, so all you have to do is input a few basic details such as the cryptocurrency, how much you invested, and the current date.
Both of these methods, however, only calculate profit based on selling your investment in the current market.
As mentioned, cryptocurrency values change frequently, which makes it difficult to calculate future profit in the same way it is difficult to know when to invest.
Do I Have To Pay Tax On Crypto?
Another factor to take into consideration when calculating profit is crypto tax.
Like any other source of income, it is a legal requirement to declare any income (profit) you make from crypto trading.
Not reporting taxable crypto activity can result in IRS investigations, added interest, penalties (fines), or even serious charges such as tax evasion or fraud.
But similar to income tax, crypto profits are only taxed if income is made.
Profits made on investments held less than a year are also taxed at the usual rate.
So, you would have to sell any cryptocurrency and make a profit on that investment to be taxed on it.
What Is The Most Profitable Way To Trade Crypto?
Last but not least, what is the most profitable method for trading cryptocurrency?
Trading is the process of buying and selling crypto for profit, and it can be done through two main ways: buying and holding or active trading.
Both of these have advantages and disadvantages.
Buying and holding is a long-term passive investment, involving buying crypto for a low price and waiting it out until the value increases to an amount (typically with a high ROI) that the investor considers worth cashing out in relation to the sale price.
Active trading, on the other hand, involves making small investments during low demand and selling during high demand. Profits, if any, are smaller but more frequent.
In either case, trading crypto to make a profit follows the same rule as stock investment: buying low and selling high.
And this is a matter of analyzing crypto charts and trends to get a “gut instinct” for when to buy and when to sell.
Remember: investing in crypto is purely speculative based on the volatility of its price and value.
So, always make sure that you know how to trade and are sure about investing before buying any cryptocurrency.
Calculating future crypto profit is complicated and often unreliable due to the fluctuating nature of cryptocurrency price and value.
It is possible to calculate the present market ROI, however, by subtracting the current selling price of the crypto from the amount you initially invested (how much you paid).
Another method is to use online crypto profit calculators, which do the calculations for you once you have inputted the details of your investment.
Either way, you want to sell your crypto investment for higher than what you initially paid for it.
So, in addition to calculating ROI, understanding how to analyze cryptocurrency charts and how they work will help you to get a better idea of how to profit from all your crypto investments.