CoinLedger will automatically detects most bridges (transactions where you send a crypto asset from one blockchain network to another) without any manual classification being required, but some bridge transactions may not automatically get recognized by our software. While we are always working to improve our software's ability to detect bridges automatically, in some cases you may need to merge two transactions together to create a "Bridge" transaction. This will apply the correct cost basis to this asset and prevent a missing cost basis warning from appearing on your account. Continue reading below for step-by-step instructions on this process!
Bridging Transactions
In the context of cryptocurrency and blockchain technology, "bridging" refers to the process of transferring assets between different blockchain networks. Multi-chain bridges are designed to help investors move their assets from one blockchain to another. For example, an investor who holds ERC-20 tokens who wishes to move their assets to the Avalanche blockchain can use the Avalanche Bridge.
When to enter a bridge trade transaction into CoinLedger
CoinLedger will identify most bridge transactions automatically, but when importing transactions from some blockchains you may need to manually merge two transactions into a "Bridge" to prevent a Missing Cost Basis Warning. Here's an example where this is necessary:
Let's say someone bought ETH on Coinbase, and then sent it to their Arbitrum address on 1Inch.
There, they subsequently wrapped their ETH, where it became Arbitrum ETH (a wrapped version of Ethereum).
Now, CoinLedger is showing a Missing Cost Basis Warning for their Arbitrum ETH. This isn't due to an issue with CoinLedger, but its due to flaws with the way exchanges and protocols send transaction data to apps like CoinLedger.
In the situation above, there were three transactions that occurred:
A purchase of ETH on Coinbase
A withdrawal of that ETH from Coinbase and a subsequent deposit of that ETH into their 1Inch account (these two transactions occurred at the same time)
Finally, the customer wrapping their ETH and it becoming Arbitrum ETH
Without telling CoinLedger that this was a bridge transaction, our app would not know that these transactions were related-and thus, a Missing Cost Basis Warning would appear in this customer's account. Here's the solution:
Step-by-Step Walkthrough
Step 1
Head to the CoinLedger app, and navigate to the Transactions page.
Step 2
Filter for the assets and/or platforms in question. Using the above example, the customer would filter their account for the assets ETH and Arbitrum ETH, as well as the platforms Coinbase and 1Inch.
Then, identify each Withdrawal and Deposit transaction that show how you bridged the asset - that is, withdrawing the original asset and depositing the new version of the asset on the new chain. The amount and timestamp for this withdrawal and deposit should be similar, if not equivalent.
Once you've located each transaction, select them as shown below.
Finally, at the bottom of your screen select Merge and then Bridge. This will create a bridge transaction between the two assets. In the example from earlier, this action would create a bridge trade of ETH for Arbitrum ETH, and would resolve the Missing Cost Basis Warning on that customer's account.
NOTE: This is the conservative approach that treats the bridge as a taxable token swap and makes the fair market value of those bridged/wrapped assets at the time you received them your new cost basis moving forward. If you're interested in learning more about how bridges are taxed, check out this walkthrough.
If you choose not to treat bridging as taxable and would like to treat bridging transactions as equivalent to holding the same asset (which would not trigger a taxable event), you can toggle Treat bridging as taxable to OFF in the Advanced Settings of your CoinLedger account.
We recommend consulting with a tax professional before making a final decision.
How to tell a transaction was not a bridge
Some transaction types can't be marked as a bridge. These include:
Transactions between assets on the same blockchain. Trying to merge transactions whose assets belong to the same blockchain will result in an error. Instead, you can mark these as a trade, as shown below.
Token updates. Token updates are not bridges and can't be marked as a bridge within CoinLedger.