I invest in crypto. How can I keep track of it all?

Q. With Bitcoin’s lower price, I have finally started investing in it and other cryptos. I’ve heard that tracking trades can be a nightmare. Is there any way I can make this easier?

— Investor

A. You are correct that cryptocurrency traders have had a difficult time tracking trades, depending on which exchange they use.

But things get easier. You just have to be proactive.

Let’s start with how it all works.

Bitcoin is the most popular type of cryptocurrency that uses a large chain of interconnected computers to store and protect digital assets, said Lisa McKnight, a certified financial planner with Peapack Private Wealth Management in New Providence.

“Investing in Bitcoin may seem complicated, but really all you need to start investing is personal identification documents, bank account information and a secure internet connection,” she said.

To start investing, it’s best to join a Bitcoin Exchange like Coinbase or Crypto.com to make the purchase, McKnight said.

“You’ll also want to get a Bitcoin wallet. This is where your purchased Bitcoin is stored,” she said. “It is important that you practice proper storage and security to ensure that your investment is not hacked.”

You also need to track your cryptocurrency across all wallets, exchanges and platforms in real time, McKnight said. For this, you can use a crypto portfolio tracking app that allows you to track the total amount and value of your cryptocurrencies, track current and historical transactions, and provide live prices of the cryptocurrency, she said. Many of the apps also have charting and value prediction tools to help users make timely decisions. Most apps are free, but some with more advanced features have annual fees, she said.

Another factor to consider is trade tracking for tax purposes.

“All cryptocurrencies are treated as property for tax purposes; therefore, you may incur capital gains and losses when you buy, sell, trade or dispose of your crypto,” McKnight said. “Outside of buying, selling and trading, if you earn cryptocurrencies, whether through a job, mining, bet, or interest from lending activities, you are liable for income tax on the US dollar value of your crypto earnings.”

She said that calculating capital gains and losses from your crypto trading activity requires detailed records to keep track of your cost basis, fair market value, and the gain or loss each time you dispose of a crypto. Without this information, you are unable to calculate your realized income from your trading activity and you cannot report it on your taxes.

McKnight said that if you’re not skilled at keeping these detailed records and ledgers, you’ll want to use crypto tax software so you can accurately report your activities on IRS Form 8949 come tax time.

“As you are aware, Bitcoin is highly volatile and prone to large and rapid swings in value, which provides an opportunity for large returns, but also poses a huge risk,” she said. “It is imperative that you learn how to invest in Bitcoin responsibly before making any decisions. Be sure to diversify your investment portfolio to protect yourself from market volatility.”

Email your questions [email protected].

Karin Price Mueller writes Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up NJMoneyHelp.com‘s weekly e-newsletter.