Working the system? ????

Can you all confirm this:

1. User buys crypto from an exchange. For example sake, let's say they buy 100 XRP at $1 each.
2. User moves their XRP off an exchange and into a cold wallet.
3. The cost average ($1) is lost (not recorded anywhere) into the cold wallet. In other words, if you move your crypto to ledger, for example, there is no place that automatically (or even manually editing) your cost average.
4. NOW - XRP price increases to $2 per. 100% increase. User wants to sell, so they move their crypto from their cold wallet/ledger back to an exchange to sell. The exchange has no idea what the cost average is, or even where this crypto came from. User sells all their XRP for a 100%+ profit.
5. Tax time comes. Tax forms ask you if you've sold crypto. You say yes. Tax forms ask you profit(?). Can't you totally make shit up at this point? There's no actually history any exchange has to accurately/honestly track where you crypto went and how much you paid...

WHAT AM I MISSING HERE EXPERIENCED PEOPLE?