The Right Way to Rebalance Your Cryptocurrency Portfolio

In the world of cryptocurrency investing, HODL rings loud, but not necessarily true. As fantastic as buying one or more digital assets and forgetting about them for a year before reaping the profits sounds, it doesnʼt always work out.

Maintaining a profitable and safe exposure to the digital assets in your investment portfolio requires a lot more experience and caretaking than you may have previously thought — especially when youʼre doing the right thing by staying diversified.

The best method for portfolio maintenance is called rebalancing. Portfolio rebalancing refers to the practice of keeping the original proportions of your investments intact regardless of individual asset price fluctuations.

The way this works in practice is simple. Letʼs suppose you decide to invest $100 each in BTC, ETH, NEO, and ADA. Your portfolio begins with four assets in equal proportions. A few days later, NEO takes off and outperforms the other assets in your portfolio. Now, your basket is disproportionately weighted in NEOʼs favor.

Rebalancing your portfolio, in this case, would entail selling some NEO and redistributing the profits across the rest of your portfolio to bring back the original proportions. Portfolio rebalancing spreads the wealth from your stronger assets, selling them at higher prices, and rebuys other assets in your portfolio at lower prices.

Portfolio rebalancing has been shown to outperform HODL strategies by an average of 64% — no small margin!

Not All Portfolio Rebalancing Strategies Are Equal

The concept of rebalancing always remains the same — but the variable in the strategy is how often you choose to rebalance.

Periodic: Periodic rebalancing uses a set amount of time to determine the intervals between rebalances. Periodic rebalancing strategies tend to form around quarterly and annual schedules

Threshold: Threshold rebalancing uses fixed percentages to determine deviation and trigger a rebalance event.

Periodic Invest: Periodically investing additional funds rebalances your portfolio by buying more of your portfolioʼs cheaper assets.

Hereʼs the catch — none of these rebalancing strategies are appropriate for cryptocurrency investing. Why? The answer is summarized in one word: volatility.

Cryptocurrency markets are notoriously volatile and experience much greater price swings than traditional markets. Traditional rebalancing strategies perform too slowly to be effective for digital asset portfolios.

MultiToken Rebalances in Real Time

Cryptocurrency is a new asset class that requires innovative solutions for maintaining safe, profitable exposure. With MultiToken, your investments grow faster and drop slower than the market due to our unique real-time rebalancing feature.

How does it work?

Letʼs take the scenario from earlier in which youʼve decided to invest $100 each in BTC, ETH, NEO, and ADA. All four of these assets are held inside of a MultiToken which you keep in your secure ERC20 compatible wallet. Your MultiToken uses smart contracts to automatically rebalance each of the assets contained within every time there is a price change.

Trading on Autopilot

Cryptocurrency markets are global and never close, so your portfolio needs to be up to the task.

MultiToken smart contracts handle the minutiae of real-time rebalancing to keep your assets in the perfect harmony 24/7, leading your portfolio to greater stability — even in a volatile marketplace.

Some may still prefer a more periodic approach to rebalancing. For those of who do, MultiToken offers three other rebalancing types:

  • MultiTokens without rebalancing
  • MultiTokens with manual rebalancing performed by fund managers
  • MultiTokens operated by a DAO system which decides when to rebalance

To learn more about MultiToken and link up with our ever-growing community, follow us on one or all of our social media channels.