Calculating and filing crypto taxes is rarely a cut-and-dry ordeal. From different income brackets to decentralized finance (DeFi) activities, there are other factors to consider when plugging in variables and estimating the taxable liabilities in your portfolio. 

Reviewing yearly buy and sell orders might seem straightforward, but the process involves more than just simple calculations. Tax authorities like the IRS rely on valuation metrics, such as comparing a digital asset’s book value versus its fair market value (FMV), to assess its overall worth.

Understanding the difference between a cryptocurrency's book value and its FMV isn’t just helpful for the IRS. As an investor, it also gives you a clearer view of your actual crypto’s worth and, in turn, your tax obligations, helping you file gains and losses with greater confidence.

In this guide, we’ll tell you what you need to know.

What is book value for crypto?

In traditional finance, investors often express the book value of a company by subtracting its total liabilities from its assets. This calculation helps investors compare a company’s book value to its current equity price and total outstanding shares, allowing them to assess whether the company is under, over, or fairly valued.

In cryptocurrency, book value works differently because digital assets operate on peer-to-peer (P2P) protocols rather than centralized institutions with fiat currency. Unless you’re evaluating the financial health of a crypto company, such as a centralized exchange (CEX), book value typically refers to the cost basis – the average price you paid for a digital asset, including any fees or commissions.

For example, if you buy 1 Bitcoin (BTC) for $50,000 and pay a $100 transaction fee, your book value for that Bitcoin is $50,100. This amount becomes your baseline for calculating capital gains or losses when you eventually sell the BTC.

What is fair market value (FMV) for crypto?

While the book value shows how much you spent on a crypto investment when you purchased it, the FMV is its current market price based on supply and demand. The FMV represents the average price at which the cryptocurrency is being traded in real-time on exchanges and trading platforms. It reflects the amount buyers are willing to pay and what sellers are willing to accept.

Since the FMV establishes the real-time value of cryptocurrencies, it’s an important figure to know when calculating gains or losses from selling or disposing of assets. You’ll also use the FMV to determine the cost basis for any digital assets you receive as rewards or income on your tax forms.

For example, if you receive 0.5 Ethereum (ETH) as payment and the FMV of Ethereum that day is $3,000, your cost basis for the ETH is $1,500 (0.5 ETH × $3,000). These figures help you accurately value your crypto portfolio and calculate your taxable liabilities.

Book value vs. FMV: Explaining the difference between book value and market value

The book value of a cryptocurrency is a fixed amount that represents how much you initially spent on the asset. While the difference between the book value and the current market price changes over time, the book value is always static. Investors use this figure to evaluate their crypto's performance and decide when to sell or trade it based on current market conditions.

The FMV, on the other hand, reflects a cryptocurrency’s constantly changing market price – the value at which it’s currently being bought and sold. Unlike the book value of an asset, its FMV fluctuates based on the specific moment of each transaction. This real-time figure determines the gap between a cryptocurrency’s book value and its FMV, which affects the gain or loss you realize when disposing of the asset. The FMV is also used to calculate the income you report from activities like staking, liquidity pools, or mining.

Why understanding market value and book value matters for crypto

So, why does understanding the difference between FMV and book value matter? It allows crypto traders to better understand their tax obligations, meet financial reporting standards, and assess portfolio performance. For tax purposes, many jurisdictions require reporting the cryptocurrency’s FMV. Meanwhile, book value gives traders a clear picture of their initial investment, helping them calculate gains or losses and decide when to sell or hold a digital asset as part of their strategy.

While FMV is now the primary measurement for most crypto assets in taxes and accounting, book value remains a key concept for determining the initial cost of a digital asset. When individuals or businesses sell a cryptocurrency, they still calculate gains or losses by comparing the asset's cost basis to its FMV at the time of sale.

Per-wallet vs. universal reporting for cost basis 

Starting in 2025, a new IRS standard related to crypto cost basis introduces more nuance to how FMV and book value are reported. Under the IRS’s Revenue Procedure 2024-28 (Rev. Proc. 2024-28), cryptocurrency holders in the United States must now track their average price per coin using the "per-wallet" method rather than the older "universal" approach.

Previously, the universal method treated all cryptocurrencies in a trader's portfolio as part of a single pool. Gains and losses were calculated based on the oldest recorded purchase, regardless of which wallet held the asset. The new per-wallet standard requires cost basis to be tracked separately for each digital wallet. While this method is more detailed and complex to manage, it gives a clearer picture of changes in book value and FMV for individual assets.

Under the per-wallet rule, investors must calculate each gain or loss by comparing a cryptocurrency's FMV to its specific book value within the same wallet. This change not only emphasizes the importance of tracking digital assets accurately. It could also encourage traders to consider how organizing cryptocurrencies across multiple wallets could impact cost basis and taxable liabilities before making investment decisions.

Simplify crypto tax reporting with CoinTracker 

Managing FMV across multiple exchanges and wallets might seem complicated, but with CoinTracker, it doesn’t have to be. CoinTracker’s Portfolio Tracker connects directly to your exchange APIs and wallet addresses, giving you real-time insights into your cost basis and FMV. It also generates tax-compliant forms that are ready to send to your CPA or use with TurboTax.

Ready to take the stress out of crypto tax reporting? Get started with a free CoinTracker account today.

Disclaimer: This post is informational only and is not intended as tax advice. For tax advice, please consult a tax professional.