Well the reason with option1 is a problem is that many of the exchanges (at least altcoins) do not track full history of trades. Many are < 50. For many micro-transfers many traders easily bypass the 50 amount. This is why I think option2 is the only option for most people. Basically track all profits at point of sale - costs, and treat either as a capital gain or income. In this case would declaring it as a capital gain be fair, or taxing as an income be more accurate?
What are the holding periods and how much of a difference are you talking about?
There is a general cost-benefit principle in accounting that we should not spend $10 to accurately measure $1, and in tax enforcement in general the tax authorities spend $1 to collect $10, not the other way around. Certainly reasonable estimation methods can be used to avoid individual measurement of micro amounts when exchange information is limited. I encourage you to consult a licensed tax professional about the details of your situation.
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