Why Rebalance?
Without rebalancing, your portfolio drifts with market movements. A 60/40 BTC/ETH portfolio can become 80/20 after a BTC rally, dramatically changing your risk profile.
Rebalancing Benefits
Risk Management
Maintains your intended risk exposure. Prevents concentration in winners that could crash.
Systematic Gains
Forces selling high (overweight) and buying low (underweight). No emotional decisions.
Discipline
Removes FOMO and panic. Stick to your strategy regardless of market conditions.
Volatility Capture
In ranging markets, rebalancing can add 1-3% annual returns through volatility harvesting.
Rebalancing Strategies
Threshold Rebalancing
Rebalance when any asset drifts beyond a set threshold (e.g., 5% from target). More responsive to market moves. Typical threshold: 5-10%.
Calendar Rebalancing
Rebalance on a fixed schedule (weekly, monthly, quarterly). Simple and predictable. Most common: monthly or quarterly.
Band Rebalancing
Allow allocation to float within a band (e.g., 35-45% for a 40% target). Only rebalance at band edges. Reduces unnecessary trades.
When to Rebalance
Optimal Rebalancing Timing
Tax Considerations
Tax-Efficient Rebalancing
- • Use new deposits to buy underweight assets (no selling)
- • Harvest losses when selling to offset gains elsewhere
- • Consider holding period—long-term gains taxed lower
- • Rebalance in tax-advantaged accounts first if applicable
Automation Options
DeFi Index Tokens
Tokens like DPI (DeFi Pulse Index) auto-rebalance. Hold one token, get diversified exposure with automatic rebalancing.
Portfolio Trackers
Apps like Thrive track allocations and alert you when drift exceeds thresholds. Execute manually with full control.
Interactive Rebalancer
Visualize portfolio drift and rebalancing actions:
Rebalancing Strategies
Threshold: Rebalance when allocation drifts beyond X%
Calendar: Rebalance on fixed schedule (weekly/monthly)
Band: Allow range around target, rebalance at edges
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Frequently Asked Questions
Rebalancing means adjusting your holdings back to target allocations. If BTC was 40% of your portfolio and grew to 50%, you'd sell BTC and buy underweight assets to return to 40%. This maintains your risk profile and captures gains systematically.
Depends on strategy: Calendar rebalancing (monthly/quarterly) is simple. Threshold rebalancing (when drift exceeds 5%) is more responsive. Band rebalancing (allow ranges) is a hybrid. Most research suggests monthly or 5% threshold works well.
Rebalancing is primarily about risk management, not return enhancement. However, it does force 'buy low, sell high' behavior. In range-bound markets, this can boost returns. In trending markets, it may slightly reduce returns but significantly reduces risk.
Rebalancing triggers taxable events. To minimize taxes: rebalance with new deposits instead of selling, use tax-loss harvesting when selling losers, consider long-term vs short-term gains, and in some jurisdictions use tax-advantaged accounts.
Automation removes emotion and ensures consistency. Options include: CEX auto-rebalancing features, DeFi index tokens (like DPI), or portfolio tracking apps with alerts. Manual rebalancing works but requires discipline.