The average cost basis (also known as cost averaging) for crypto assets is a method used to calculate the average price at which an individual crypto asset was purchased. This is most helpful when the asset has been acquired at different prices over time.
To calculate the average cost basis, we add up the total amount spent on purchasing the crypto asset and divide it by the total number of units acquired. This gives the average price paid for each unit of the crypto asset.
Here's the formula:
Average Cost Basis = Total Amount Spent on the Asset / Total Number of Units Purchased
It might not be 100% accurate because the price of assets fluctuates significantly. Additionally, the assets could have been purchased on centralized exchanges or in another wallet. Therefore, Loch estimates the average entry price based on the price at the time the assets were transferred to the address.