How it works
FIFO treats the earliest units you acquired in a wallet or account as the first ones sold. It is the IRS default when no specific identification is made, and it is the method brokers apply on Form 1099-DA unless you instruct otherwise. In a rising market it produces the largest gains because your oldest lots are usually your cheapest.
Why it matters
If your records cannot support another method, FIFO is what an auditor will apply, and it is what the 1099-DA already assumes. Understanding it explains why a broker form can show more gain than you expected.
Example
You bought 1 BTC at 20,000 dollars in 2020 and 1 BTC at 60,000 dollars in 2024, then sold 1 BTC for 65,000 dollars. FIFO gives a 45,000 dollar long-term gain. Specific identification of the 2024 lot would give a 5,000 dollar gain.
Related: specific identification, HIFO.
