Crypto portfolio rebalancing: Manage risk and maintain diversification with one tool

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. Whenever an asset grows higher than it should, you sell it to make more room for other assets.

These tend to provide more stability than smaller cryptocurrencies, although they are still volatile. To improve your crypto portfolio, this guide will cover the most effective ways to diversify it. Although it features a portfolio option, CoinGecko is primarily recognized for its bitcoin price tracking. If you currently use CoinGecko frequently, the tracker is worthwhile to test as well.

Buy the market leaders

For instance, Bitcoin was developed as a virtual currency, while Ethereum offers smart-contract capabilities that enable the development of digital applications . Other altcoins, such as Ripple , were intended to make money transfers easier than in financial institutions like banks. A diversified crypto and blockchain portfolio can benefit from the sector’s growth while potentially experiencing less price volatility. Investors can use diversification strategies to accomplish a myriad of investment goals, ranging from income generation to inflation hedging to capital appreciation. Investing involves risk and there is the potential of losing money when you invest in securities and digital assets.

This can get problematic for high-volume traders, as tracking down all the data needed to properly report capital gains from hundreds of trades can be impossible to do by hand. If you aren’t familiar with how the US treats crypto for tax purposes, please read our article here. We noticed a positive correlation between performance and a shorter rebalance period.

Depending on your profile and investment approach, you can easily lower your overall risk. Simply spreading your investments across various cryptocurrencies is all that is required to get started. This helps to reduce risk by ensuring that your portfolio remains diversified and does not become too heavily exposed to any one asset. Periodic rebalancing entails rebalancing your portfolio on an hourly, daily, or weekly basis. You decide which time period to use, and buy or sell assets to bring them back to their original allocation target.

Diversifying Your Crypto Portfolio

It means that your investments are weighted toward one or two tokens, if the price crashes, then your portfolio will crash with it. A well-balanced crypto portfolio can help your investments achieve optimal results. In the following sections, we’ll discuss how you can build a diversified and balanced crypto portfolio that will ultimately minimize risk and enhance your long-term profits. This article is not a recommendation for investment or investment in cryptocurrency, as well as perceived as investment advice. Be careful, because investing in cryptocurrencies is very risky and you need to consult with your financial advisor.

Depending on the country or region, an cryptocurrency portfolio rebalanceor might be required to pay capital gains taxes on transactions when selling an asset to rebalance a portfolio. For example, the US Internal Revenue Service recently classified cryptocurrencies as assets similar to property. The study concluded that portfolios with shorter rebalance time intervals outperform those with longer intervals, especially for portfolios with more assets.

You’ll also see the portfolio’s APY and any previous rebalances made. If you select hourly rebalances, the bot will rebalance your portfolio by selling assets that are above the desired allocation every hour and use the proceeds to buy the other asset. Rebalances in scheduled mode will only occur if the portfolio has become unbalanced by 3% or more at the selected interval. Since the bitcoin market is unstable, it helps to have investments in your portfolio that maintain their worth. Stablecoins shouldn’t be impacted by a decline in the cryptocurrency market if they are pegged to external entities.

Betterment crypto accounts hold approximately 2% of their assets in a USD cash allocation. To prevent unnecessary asset liquidation, Betterment’s monthly management fee is pulled from this portion of the portfolio. If your cash allocation exceeds the 2% target weight, we will use excess USD to purchase underweight coins. If your cash allocation drops below the target weight, we will only sell overweight coins in an attempt to return your USD balance to the 2% target weight. One of the smart portfolio trading bot’s stand-out features is its comprehensive profit and loss reporting capabilities. Clicking Details next to an open position will open a detailed report on your strategy’s performance.

Crypto Portfolio Rebalancing: Pros and Cons

Crypto portfolio rebalancing offers many advantages but it also has its flaws. If the pros offset the cons, you might want to go ahead with rebalancing. The section below features a list of popular rebalancing strategies for your crypto needs. Rebalancing a portfolio calibrates your risk level by adjusting your holdings and bringing them back to their original levels. Remember, it’s all about taking profits, buying low, and selling high. When you first invest, the assets inside your portfolio will likely be proportional – each asset will have the same value.

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. For me, the biggest advantage of rebalancing is actively changing allocations. But I’m so confident in my picks that I fail to consider the performance of my assets.

Rebalance your portfolio mix across crypto and Gold and Silver Standard.

Fulfilling tax requirements – You may be required to pay capital gains taxes after selling MATIC an asset to rebalance a portfolio. You can set an hourly, daily, and weekly rebalancing time-basis next to the periodic rebalancing option. And next to the threshold, you can type in any number for your rebalancing threshold. 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.

Decentralized finance platforms provide blockchain alternatives to traditional financial services. Don’t rely only on recommendations from others as you are investing your own money. SIBEX is an OTC dark pool that assists users in trading Bitcoin, Ethereum, and ERC 20 Tokens using hashed time-locked contracts . Holderlab.io has handy tools so that you can analyze data from another crypto exchange in one window. For example, consider a portfolio with 25% each of Bitcoin , Ethereum , Chainlink , and Cardano .

However, you should Invest in cryptocurrencies that address real-world problems, which will lessen your exposure to unpredictable speculation. Also ensure that you thoroughly research both established and emerging industries before deciding on a coin or coins in which to invest. Cryptocurrencies have many different real-world applications aside from serving as a store of value or a way to buy and sell goods and services securely. There are currently over 12,000 cryptocurrencies and the number of tokens continues to grow at an extraordinary rate.

The study used cryptocurrency portfolio rebalances ranging from 1% to 50% to identify a trend. Similar to the previous study, the study compared portfolios using threshold rebalancing strategies to a portfolio using the HODL strategy. As shown in the figure below, the 15% threshold-based rebalancing strategy yielded the highest performance.

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. Portfolio rebalancing is an effective investing strategy that allows you to secure profits and prevent losses. One of our case studies has shown that portfolios rebalanced on an hourly basis perform up to 234% better than HODL strategies. But not all portfolio rebalances beat HODL – especially not inefficient ones. Be the first to put your crypto investments on autopilot with digital asset allocation that is customized for you.

https://www.beaxy.com/ 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. Let’s say I have $100,000 in crypto and another $100,000 in Tether . If the market crashes 30% it’ll only affect my crypto holdings, leading to $30,000 in losses. But by holding stablecoins, not only do I avoid losses, but I also gain the opportunity to rebalance my portfolio by reinvesting my stablecoins into crypto.

For instance, Portugal is seen by investors as both a crypto hotspot and a tax haven. El Salvador was the first nation to recognize Bitcoin as legal tender, and they intend to build a “Bitcoin City” that will be tax-free and run entirely on digital assets. A well-balanced crypto portfolio is one that contains multiple types of cryptocurrency with different use cases and risk levels. The investor allocates a set amount of funds to each cryptocurrency and rebalances as necessary when buying new cryptocurrencies or selling off holdings. Portfolio rebalancing only works when the assets in a portfolio are generating value. For example, imagine a trader has a portfolio with 50% BTC and 50% some other token.

Click the menu to the left of the highlighted field and select every minute or hour. To get started with the smart portfolio trading bot, sign in to your OKX account. A very well-liked price tracker called CoinMarketCap has created its own portfolio tool. Both desktop and mobile users can access the portfolio tracker without charge. The portfolio tracker does not connect to your wallet or exchange, therefore you must manually enter your assets in order to utilize it. To precisely track your gains, you can also choose to include the prices at which you made your purchases.

Digital assets are not legal tender and are not backed by the U.S. government. Digital assets are not subject to FDIC insurance or SIPC protections. While it’s good to have a well-balanced portfolio, it’s also time-consuming, which is the main drawback. Finding the right cryptocurrencies, deciding on asset allocation, and rebalancing your portfolio all take time. And, since the market is so volatile, a diversified crypto portfolio is no guarantee of success. Cryptocurrencies aren’t the only crypto investment option out there.

Therefore, if investing is an art, then portfolio management is the science behind it. Overseeing a set of crypto investments to ensure they meet long-term financial goals involves keeping track of many things. Between investing within your risk tolerance and predicting the highest growth investments, portfolio management is no walk in the park. A cryptocurrency portfolio helps you track and manage your digital assets. It provides you with an overview of all your cryptocurrencies, their amounts, and values, as well as the profit/loss of your overall investment. Rather, choosing to diversify your crypto portfolio means that you are taking a proactive approach to risk mitigation.

• Now, after every 12 hours, 3commas automatically rebalances my account and buys/sells coins based on my defined portfolio diversification.
• Remember, it’s all about taking profits, buying low, and selling high.
• It requires you to weigh pros against cons, opportunities against threats, and risks against rewards, all while maximising expected returns within the appropriate risk exposure levels.
• However, Shrimpy as a free option is indeed great, and if rebalancing is your only requirement, you better use this.
• The primary advantage of crypto portfolio rebalancing is limiting your exposure to risk.

Constant Proportion Portfolio Insurance is a rebalancing strategy based on the premise that risk increases along with wealth. To protect your capital against risk, you need to allocate a portion to cold hard cash – or stablecoins. Doing so ensures that your wealth is protected and that your portfolio is not subject to extreme volatility.