Friday, June 2, 2023

Unrealized Profit & Loss

by Hideo Nakamura
Unrealized Profit & Loss

Unrealized Profit & Loss (UPL) is an accounting concept used in cryptocurrency trading. It is the difference between what a cryptocurrency investor has paid for their tokens and the current market value of those same tokens. UPL measures potential gains or losses that have not yet been realized, meaning they are neither taxable nor reportable on any financial statement until they are actually sold.

The calculation of unrealized profit or loss is simple – it’s calculated by subtracting the cost basis of a token from its current market price. For example, if an investor purchased 10 Bitcoin at $5,000 each and the current market price was $7,500 per coin, then their unrealized profit would be ($7,500 – $5,000) x 10 = $20,000 USD. On the other hand if Bitcoin had dropped to a market price of only $4,000 then their unrealized loss would be ($4,000 -$5,000) x 10 = -$10 000 USD.

It’s important to note that although this number will fluctuate with changes in BTC’s market prices over time it does not represent actual profits and losses until you sell your coins for fiat currency (or equivalent). Until such time as you realize these profits/losses through trades or withdrawals from exchanges all gains remain ‘unrealised’ and thus non-taxable/non-reportable under most jurisdictions’ laws.

Cryptocurrency investors should keep track of UPL because it provides valuable information regarding how much money can potentially be made on future trades or when selling off holdings completely at some later date; however one must also bear in mind that this figure could go up or down depending on future fluctuations in crypto markets so one must always weigh up risk versus reward prior to committing funds into any trade!

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