With Crypto.com you can choose to keep your cryptos on the exchange, or self-custody them in a crypto wallet of your choice. They hope that you will choose the Crypto.com Onchain wallet to self custody your cryptos. Any wallet will do the trick, really. However, to fully benefit from Crypto.com, it is better to use the Onchain wallet. I'll tell you why this later. Without knowing better, I have complicated things for myself in terms of tracking crypto for taxes. This is why I'm writing this post, hopefully you avoid my mistake.
Crypto.com is CRO-centric
The first thing to know is that Crypto.com is CRO-centric. In other words, like Binance has BSC (Binance Smart Chain) and Coinbase has Base, Crypto.com uses Cronos as its preferred chain. It's not as pronounced on the exchange. But it runs everything on Cronos.
Having said that, you don't necessarily need to use the Cronos blockchain. If your situation is more based on Ethereum, Arbitrum, zkSync Era, Base, or Optimism, you can focus on those chains using your Crypto.com Onchain mobile wallet. What is important here is that the Onchain Wallet connects to your Crypto.com account.
Given that my DeFi setup is on Cronos, it means that at times it is simpler to buy CRO and trade it for another crypto. On the other chains, ETH would be the main token that trades with everything, except BSC which pairs BNB with everything.
On Cronos, CRO pays the gas fees on transactions. Therefore, my starting point will always be CRO.
Connecting Crypto.com Account to Onchain Wallet
It is necessary to connect your Onchain Wallet to your Crypto.com account. You need to be certain that this is done both from the exchange and from the wallet. My mistake was only connecting from the exchange and not the wallet.
When you connect from the Crypto.com exchange, it makes it easier to transfer cryptos out to your Onchain wallet.
When you connect your Onchain wallet to the Crypto.com exchange, it gives you access to your payment methods and cash balance within the wallet. Otherwise, each time you buy in the Onchain wallet will require you to enter your payment information, which is slow and frustrating. It is for this reason that I would buy crypto on the exchange and then transfer to the Onchain wallet. I was creating unnecessary transactions.
Transfers Between Crypto.com Exchange and Onchain Wallet
One frustration I had was not being able to buy cryptos within the Onchain wallet easily as a result of it not being connected to the exchange. This required buying the cryptos on the exchange and then transferring out to the Onchain wallet. This can be particularly frustrating given that my jurisdiction does not allow direct purchase of USDC using a debit card. I would have to buy another crypto and convert it to USDC, then transfer to the Onchain wallet.
Crypto.com offers the option of "instant transfer" from your bank, which allows you to buy larger amounts of cryptos instantly, but you can't transfer them out for seven days. The other alternative is to do a normal bank transfer, which can take days to post. Then you can buy and transfer cryptos out quickly, after the payment posts. In both instances, the Crypto.com exchange would need to act as an intermediary. This results in transfer transactions that make it more complicated to figure out your taxes.
The Solution
As it turns out, I could have avoided much of this by connecting the Onchain wallet back to the Crypto.com exchange within the wallet settings. When you do this, your exchange payment information is available to you within the Onchain wallet. You can use your saved debit card or cash balance to make purchases within the Onchain wallet, preventing you having to transfer cryptos out of the exchange. The purchase is made directly in the Onchain wallet, which records your cost basis.
There are still circumstances where this doesn't work. Texas does not allow residents to directly purchase USDC with a debit card. However, we can purchase another crypto and then convert it to USDC or cash. While it still introduces an unnecessary transaction, it is still easier to figure out taxes when done within the same wallet as the cost basis can be directly traced.
Why Onchain Wallet Is Better
Besides the easier tax tracking, it is better to use the connected Onchain Wallet, which gives you access to your saved payment methods, because this gives you access to DeFi services that aren't available within the Crypto.com exchange. And, if you are particularly keen on the "not your keys, not your crypto" mindset, then this method also ensures that you self-custody all your crypto. Although you still end up buying directly from the exchange, the crypto is never held in their custody after the purchase.
Cleaner Transfers
It is still necessary to transfer between an exchange and a self-custody wallet sometimes. When I do this, even between two self-custody wallets, I use USDC or some other stablecoin. By doing this, it is possible to simply use $1 as cost basis, which simplifies tax preparation.
Not Unique
Coinbase Wallet also makes it easier to buy crypto using your saved payment methods on the Coinbase exchange. It is not absolutely necessary to buy on the exchange and transfer out to the wallet.
Better Flows
The small detail of connecting my crypto wallets to their corresponding exchanges makes a big difference in my crypto buying experience. It makes for easier access to cash for crypto purchases without also introducing extra, unnecessary transactions. It is such a simple thing that is easy to overlook.