Rebalancing Strategy For Your Crypto Portfolio

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In this article, we will try to figure out which rebalancing strategy to choose for our crypto portfolio and how rebalancing can affect our crypto portfolio.

Cryptocurrency investment decisions

Firstly, one of the biggest gifts that an investor can afford is a strategy that can eliminate emotions from investment decisions. Such a strategy is to rebalance the crypto portfolio.

Secondly, it is worth noting that for rebalancing, the distance or horizon of investment and the degree of risk tolerance are important.

Cryptocurrency investment horizon

By investment horizon I mean a period, it can be 1 year, 3 years or more. An investor, first of all, needs to decide and follow his investment period, since in most cases rebalancing will not give the desired effect over a short distance. However, the cryptocurrency portfolio, in view of its high volatility, can show good results at a distance of 1 month, therefore it is important to monitor and monitor your cryptocurrency portfolio.

Why rebalancing a crypto portfolio?

So what does rebalancing do with the portfolio? Rebalancing is the restoration of the original structure of a crypto portfolio. Let’s look at an example of rebalancing a cryptocurrency portfolio.

Rebalancing Strategy For Your Crypto Portfolio

Rebalancing smooths the profitability of our crypto investments, forcing us to buy low and sell high. Rebalancing a cryptocurrency portfolio is a tactical tool that allows you to bring the shares of cryptocurrencies in a portfolio to their original allocation. Rebalance is not a goal, it is just a mechanical tool. In Holderlab, we implemented manual and automatic rebalancing by period and threshold; we will talk about this further.

What types of rebalancing of the cryptocurrency portfolio exist?

Manual balancing. You decide when you need to restore balance if you think the time has come or there are enough deviations. Unfortunately, we must exclude emotions and adhere to clear rules when making investment decisions. Let us consider in more detail two other types of rebalancing – threshold and periodic.

Threshold rebalancing of the cryptocurrency portfolio

The threshold rebalancing of cryptocurrencies represents the moment when one of the cryptocurrencies in the portfolio reached a certain level of growth, for example, at the level of 5%, and we rebalance this crypto portfolio.

Let’s look at the test result of the above distribution of cryptocurrencies:

5% threshold rebalance

Rebalancing Strategy For Your Crypto Portfolio
Rebalancing Strategy For Your Crypto Portfolio

Result: P&L – 117.68%, Max.drawdown – 79.87% (due to the fact that our test portfolio is not too diversified)

Further, we suggest looking at a chart of all possible distributions of threshold rebalancing and their profitability and maximum drawdown.

Rebalancing Strategy For Your Crypto Portfolio

As we can see from the distribution diagram of the threshold rebalancing, we did not begin to calculate the rebalancing beyond the threshold of 6%, since the drawdown of the portfolio became more than 95%. Obviously, we will not be able to allow such a drawdown value and this is also probably due to the diversification of our portfolio and correlation.

Look at the correlation of this crypto portfolio.

Rebalancing Strategy For Your Crypto Portfolio

Correlation estimate for 1 year. We see that three of our four assets are highly correlated with each other. Which, as a result, affects the size of our drawdown.

Periodic rebalancing of the cryptocurrency portfolio

Periodic rebalancing is a strategy when you need to rebalance your portfolio at different times, for example, once a week or once every 5 hours.

Rebalancing Strategy For Your Crypto Portfolio

As we see the return of the portfolio is quite restrained with an increase in the hourly period of rebalancing. Portfolio drawdown does not grow exponentially, as is the case with threshold rebalancing. The decrease in profitability and the increase in drawdown, as we see, occurs starting from the 8 hour rebalancing period.

Daily and weekly periodic rebalancing

Rebalancing Strategy For Your Crypto Portfolio

As we see, the drawdown has increased significantly compared to the hourly periods, while the risk and profitability are comparable to the threshold rebalancing values.


In this article, we examined the principles of rebalancing and the need for its use. Our test portfolio was not very diversified, and part of the assets correlated strongly with each other. In the following articles, we will look at the diversification of crypto portfolios and their relationship with risk and profitability.


This article is contributed by, with the help of Holderlab, you can automate your strategy for automatically rebalancing the cryptocurrency portfolio. You can choose manual, periodic or threshold rebalancing of the near-currency portfolio. Rebalance your crypto portfolio for free now.

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. Past earnings do not guarantee future earnings.

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