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Rebalancing Cryptocurrency Portfolio: What, Why, and How?

Rebalancing cryptocurrency portfolio is an important part of the investment strategy of investors. It allows them to reallocate their funds for investment in different cryptocurrencies for getting maximum return. Crypto portfolio rebalancing helps to maintain a healthy mix of different cryptos so that a desired level of risk can be maintained by the crypto traders. Periodic rebalancing of your crypto portfolio is needed so that the desired allocation or risk is maintained. 

Now let me walk you through the different aspects of rebalancing crypto that you must know as an investor.


Rebalancing Cryptocurrency Portfolio: What is it?

When you rebalance your crypto portfolio, you essentially redistribute asset allocation. This is done primarily to maintain allocation as well as risk at a desired or original level. You can rebalance your cryptocurrency portfolio by buying or selling crypto assets on a periodic basis for maximizing portfolio performance. 


Different cryptos have different value systems. That’s why, you’ll not get a uniform weighting for every cryptocurrency, giving rise to variation in quantity of each crypto. For traders, a value based system is easier and more straightforward to manage. They can not only keep a tab on the performance of his/her bought cryptocurrencies but also allocate them in terms of original weightage. 

Why Rebalance a Cryptocurrency Portfolio?

Investing in cryptocurrencies can be highly risky. Due to price fluctuation and uncertain market condition, asset allocation has become a very important way to ensure stable returns. 


When rebalancing cryptocurrency portfolio, you as a trader/investor makes profits from the overperforming asset by reinvesting the proceeds into other cryptocurrencies. Therefore, risk profile can be maintained by you no matter in which direction the market is moving. By rebalancing crypto portfolio, you can reap benefits in all market conditions and increase overall profitability of your cryptocurrency investment. 


As you rebalance your crypto portfolio, you essentially sell the crypto that overperformed and buy an underperformed asset. In this way, you are fully utilizing the strategy of buying at every low and selling at every high. This rebalancing reverts back the market to the mean value, thereby increasing the overall returns. 


Another major advantage of portfolio rebalancing of cryptocurrencies is that it is helping investors to avoid emotion-driven trading/investing decisions. In the crypto market, it is seen that the inexperienced retail investors are driven by:

  • FOMO (Fear Of Mission Out) when the price rises and
  • Emotion-driven decision making when the price crashes.


When you are using rebalancing crypto, you are essentially guided by predetermined rules. This helps you in maintaining focus on your investment plan. 

Top 2 Best Crypto Portfolio Rebalancing Strategy

There are two major strategies of cryptocurrency portfolio rebalancing:

  1. Periodic rebalancing of portfolio
  2. Threshold rebalancing of portfolio

Now, let’s take a closer look at both of them.

Periodic Rebalancing

According to this strategy, you rebalance your crypto coin’s portfolio after a predetermined time interval. This strategy is most suitable for the beginners. As per this strategy, you have to rebalance the portfolio after a particular time gap, say:

  • every hour
  • every day
  • every month, or 
  • a fixed interval of time. 


The time interval you choose will again be dependent upon your appetite for risk tolerance. 


A shorter time interval may be suitable for rebalancing if you want to maximize returns by minimizing risks. This is mainly because of the fact that cryptocurrency market has very high volatility.

Threshold Rebalancing

This strategy requires you to rebalance your portfolio when weightage of a particular crypto in your portfolio surpasses a particular value. 


Let me explain it with an hypothetical scenario. Suppose, you are holding 4 cryptocurrencies with equal weightage (25%) allocation:

  1. Bitcoin (BTC): 25% of the total fund
  2. Ethereum (ETH): 25% of the total fund
  3. Chainlink (LINK): 25% of the total fund
  4. Cardano (ADA): 25% of the total fund


You may want to hold these cryptos with an individual weightage of 25% each. 

Now, suppose Bitcoin starts performing well and its weightage (value in terms of fiat currency like USD, EUR, etc.) increases to 30% from 25%. However, Ethereum starts underperforming and its weightage in the crypto portfolio decreases from 25% to 20%. In that particular scenario, you would like to correct the weightage (+/- 5%) balance of the portfolio to its initial allocation level. That’s why, you have to sell BTC and buy ETH for rebalancing the portfolio.

Combine Both Strategies or Use Trading Bot

You can use both periodic rebalancing and threshold rebalancing to get maximum profit. If you don’t have too much time in hand, you can use trading bots for rebalancing your portfolio. There are many renowned bots available in the market that can make best investment decisions. 


Use automatic rebalancing of crypto portfolio on day trading as well as HODLing for increasing your portfolio value. The perfect time to rebalance is dependent upon your decision. While choosing crypto trading bots, you have to select appropriate target allocations in the asset portfolios during crypto trading and crypto rebalancing to get maximum portfolio performance. Having a clear investment horizon is a must for every investor for choosing the right strategy.

Invest in Cryptocurrencies and Rebalance your Crypto Portfolio

You can buy and sell cryptocurrencies against various fiat currencies (US Dollar USD, British Pound, Canadian Dollar CAD, South Korean WON, Singapore Dollar, Chinese Yuan, Hong Kong Dollar, etc.) through a wide array of crypto exchanges (centralized or decentralized exchanges). 


If you want to increase your investment explosively in the coming 5-to-10 years, buy crypto coins now. Keep an eye on the market news, price statistics, block times, and others to time your trading of Defi systems and tokens for maximum profit. 


You can also diversify your crypto coin portfolio by including other cryptocurrencies such as Bitcoin Ether ETH, Bitcoin Gold, Bitcoin Cash BCH, Basic Attention Token, Ethereum Classic, Binance Coin, Wrapped Bitcoin (some also call it wrap bitcoin or wBTC), USD Coin, Gemini Dollar, ERC20 tokens (created on Ethereum blockchain), NFTs, and others. Always keep rebalancing portfolio periodically to get maximum profitability. 


Also, invest in various types of stocks, mutual funds, index funds, real estate, and others to improve your personal finance. If possible, get help from a portfolio manager or wealth management firm for maximum return. 


Invest in NapBots: A Dynamic Cryptocurrency Index

Whether you are a professional or retail investor, you can expose your capital to a diversified portfolio of digital assets & crypto asset classes by simply investing in NapBots. It is a smart crypto index service that introduces multifarious features and passive portfolio management strategies for enabling cryptocurrency investors to streamline their trading experience in new ways. 


NapBots provides you various indices that include a basket of tokens with high market capitalization and are categorized by theme (such as Solana, NFT, DeFi, and others). This platform introduces an intuitive interface as well as advanced allocation tools for enabling new investors to create and manage advanced crypto indices easily.


The best part of NapBots is that it tracks and executes trades automatically on the basis of your pre-set choices of indexes. The platform is very affordable as it enables you to start trading as low as US$150 with a monthly service fee of just 2.5%, which is far below the current rate of other cryptocurrency index providers. Therefore, NapBots reduces the financial barriers and at the same time eliminates the need for human intervention and the consequent human error. 


Get started with crypto-asset investing by investing through napbots.com, a dynamic crypto index for expanding diversified exposure to bitcoin and leading crypto-assets at reduced financial barriers and no human error.