I discovered Shrimpy from their medium post about portfolio diversification and rebalancing. In fact, their case study on portfolio rebalancing was so persuasive, I ended up testing it, and the results turned out better than expected. I have used 3Commas for a while, but it was only recently that I found out about its rebalancing feature.

If the price that spiked were to then drop to its original state, you still earned a positive return thanks to rebalancing. Do keep in mind that since SwissBorg is all about facilitating investing in crypto the smart way, our focus will be on the rebalancing of crypto portfolios. Objectively, active periodic rebalancing is a better investment strategy than hodling (buy-and-hold). Crypto-to-crypto trades are treated as “taxable” events by the government.

Asset Rebalancing

Ultimately, portfolio rebalancing depends on your unique financial profile. If you are a young investor with several decades of employment to come, you may be able to manage a riskier portfolio with longer rebalance periods. Trading in bull markets can be as stressful as managing your assets during downtrends. Crypto markets trade 24/7, and reacting at any price move it’s challenging. This strategy makes it easy to rebalance the coins in your wallet in a bull market, taking advantage of the daily volatility.

I set a time-schedule of four hours and rebalance my portfolio each four hours. Even better, I use a platform like Shrimpy that’ll automatically rebalance my portfolio. The assets within my portfolio might move up to 5, 10, or even 15% from their allocation target. The above material and content should not be considered to be a recommendation to invest in a strategy or any individual digital asset. Without the help of any tool, you’ll have to rebalance your portfolio manually. If you want to make your life easier, you should automate your rebalancing experience.

Cryptocurrency investment horizon

Backtesting is one of the best ways to gain an edge by having insight into the past and predicting future outcomes. Marko is a crypto enthusiast who has been involved in the blockchain industry since 2018. When not charting, tweeting on CT, or researching Solana NFTs, he likes to read about psychology, InfoSec, and geopolitics.

It makes sense to predetermine a minimum rebalancing threshold, which can become your personal psychological benchmark for you to rebalance. Most rebalancing strategies are time period-based, such as GALA yearly, quarterly or monthly. They can also be reactionary, for example, based on allowable percentage compositions of assets, which is more cost-intensive. If the original target asset allocation was 50/50 among assets A and B and asset A performed well, it could have increased the weighting of the portfolio to 70%.

Types of Portfolio Rebalancing Strategies

As the moves and prices go up or down, the allocation of your portfolio changes. Since each asset is priced differently, the percentage of an asset within a portfolio should be calculated in fiat or a base currency. In other words, if you had $1000 to create the portfolio, you’d buy $500 worth of BTC, $250 worth of SOL, and $250 worth of AVAX.

Which one you’ll use depends on how you want to manage your risk tolerance, portfolio diversification, and asset exposure. Be the first to put your crypto investments on autopilot with digital asset allocation that is customized for you. Threshold rebalancing is a rebalancing strategy where you apply tolerance bands to your holdings. An asset has an assigned allocation percentage and can not deviate excessively. You may allow the asset to move 10% up or down, but you’ll buy or sell it as soon as the price change breaks 10%.

The primary purpose of rebalancing a portfolio is to manage risk. Asset allocation is an essential component in ensuring stable returns. It’s common for investors to continue holding an investment when the asset’s price is in an uptrend. A long-term overallocation to one asset may result in huge losses when the asset’s price reverses. When rebalancing a portfolio, a trader profits from the overperforming asset and reinvests it into other assets. By doing this, traders can maintain their risk profile regardless of market movement and reap the benefits.

Becoming a more disciplined crypto rebalancing strategy – Very few people are able to remove their emotions from the investing equation. This can lead to them making decisions based on a temporary state of the market or even their own predictions of where the market will go. Investors who stick to rebalancing put their focus on their portfolio and not the market.

https://www.beaxy.com/base is the largest U.S.-based cryptocurrency exchange in the market at this time. The platform is geared towards novices and features a simplistic interface that simplifies basic trading activities. Currently, Coinbase is one of the most reputable exchanges in the world. Portfolio trackersStay up to date on the value of your crypto assets and monitor your profit daily with these cryptocurrency portfolio trackers.

Cryptocurrency investment decisions

Investors tend to hold one half of their portfolio in Bitcoin and the other in Ethereum. If they wish to ensure a 50/50 split forever, they can incorporate a threshold rebalancing strategy. This would involve setting a 5% tolerance band so that the portfolio can maximally deviate to a 55/45 split. If one asset outperforms, the investor will sell it to buy the other asset. The primary advantage of crypto portfolio rebalancing is limiting your exposure to risk. By rebalancing, you minimize the minimum and maximum amount of money you can win or lose.

But on any slight retrace, their portfolio might experience some significant loss. Thus, if an investor wants to ensure that their capital and profits are secured, it is vital to exchange portfolios of their tokens for stablecoin. If your Bitcoin jumps 200% in value, you can move this profit to USDC since it hasn’t moved much – or at all. Portfolio rebalancing allows investors to check their risk level and adjust their holdings to the initial levels. Bitcoin increases in price, but fails to catch up with the explosive gains brought by ETH and LINK. What happens is that the dollar value of BTC decreases and becomes smaller in size compared to the other assets.

The effectiveness of threshold rebalancing GALA depends on the market, but also on the width of the threshold. How your strategy turns out depends on whether you apply a low or high threshold strategy. There’s no invisible force that pulls an asset down once it goes up and pushes it up after falling down. If I sell an asset, there’s the risk that it will continue rising in value, forcing me to lose money on a good asset.

Some investors may change their portfolios manually, while others may use automated tools or services. There are also several rebalancing strategies that you can use, such as mean-variance optimization or risk parity, to help you determine the best way to allocate your assets. Cryptocurrency portfolio rebalancing is adjusting the proportions of different cryptocurrencies to maintain your desired asset allocation. This can be done manually or automatically, depending on the tools and strategies you use.

• The figure below shows how a rebalance period of 1 hour yielded the highest returns.
• It also helps to achieve long-term portfolio growth in a highly volatile market.
• Objectively, active periodic rebalancing is a better investment strategy than hodling (buy-and-hold).
• Even better, I use a platform like Shrimpy that’ll automatically rebalance my portfolio.

When the current coin ratio exceeds the default level of 0.5%, auto rebalance will be triggered. With the parameters above, User A holds 400 USDT worth of BTC and 400 USDT worth of BNB in the portfolio when the strategy starts. As the rebalancing by time condition is set to 7 days, the system will automatically calculate the ratio of each coin in the portfolio every 7 days. This can often be easier said than done because it’s only natural to you to continue holding an investment when its price is in an uptrend. Sure, you know that successful traders and investors buy low and sell high.

Contrary to public perception, rebalancing does not require a standard 60/40 stock and bond split. Rather, true rebalancing allows for a wide range of allocations dependent upon an investor’s financial goals and timeline. Rebalancing also enables investors to adjust their portfolios to meet both their changing risk profile and their ever-evolving financial needs.

We write product reviews and comparison articles in the field of cryptocurrency. We see that three of our four assets are highly correlated with each other. It also helps to achieve long-term portfolio growth in a highly volatile market. Thematics, which are essentially theme-based crypto bundles, will allow you to use your interests, values, and beliefs to invest in a future you want to see. The return and benefits rebalancing can bring are best visible in the long run, so it’s not a one-time-use type of tool. You can use CryptoTrader.Tax to automate the crypto tax-reporting process.

For example, suppose a trader uses a weekly rebalancing strategy, reviewing their portfolio every Saturday, and also sets a threshold of 10%. When Saturday arrives, the investor will review the asset allocation. If the asset’s allocation drifted by only 5%, the investor would not rebalance their portfolio. Similarly, if the allocation drifts by 10% during any intermediate day, the investor will not rebalance their portfolio. In short, the trader only rebalances their portfolio when the threshold requirement is met during the rebalancing date.

Also, cryptocurrency exchanges have different fees and asset prices, which can affect the portfolio’s performance. Portfolio rebalancing is a strategy that enables investors to balance the scale between risk and profit by readjusting asset allocations. Periodical rebalancing makes it possible to retain one’s original asset allocation weightings, which in return, helps with sticking to specific risk targets. Calendar rebalancing is a strategy that focuses not on allocations or value, but time. All you need to do is determine a time interval at which you want to rebalance.

Rebalancing optimizes a portfolio by selling assets that have moved up and redistributing funds into assets that haven’t moved yet. If a random altcoin jumps 300% in value, you might want to take profits and secure your win. You move them to an asset that hasn’t moved much – or at all.

To better understand exactly how rebalancing works, let’s look at a simple financial example. Analysts typically encourage a more consistent cadence, as on a monthly or quarterly basis. This approach allows for regular opportunities to rebalance without overreacting to short-term volatility. Portfolio rebalancing is an equally useful technique after sustaining losses as it is for managing outperforming assets. Portfolio rebalancing is the process of harvesting outperformance from one asset class and redirecting them to other asset classes that have not performed as well. Get started today using free tools like the crypto portfolio correlation matrix.