As you know, cryptocurrencies are bought and sold on exchanges such as CEXs and DEXs, where their values constantly fluctuate depending on the overall crypto economic landscape, such as demand, politics, and other nuances within current tokenomics. Your wallet likely contains a few different tokens and coins, making up your portfolio. Your portfolio balance will look different depending on a few factors, including risk tolerance.
So, what is portfolio rebalancing?
Just like it sounds, portfolio rebalancing is the process of assessing and realigning the balance of investment assets in a portfolio. It involves periodically buying or selling assets to maintain a desired allocation as market prices shift and different investments start performing better or worse. For example, you might desire an allocation of 50% $ETH and 50% $BTC in your wallet. When one performs better than the other, the portfolio’s balance shifts away from your target allocation, creating the need for a rebalancing.
Why Should You Rebalance Your Portfolio?
There are three main reasons investors rebalance their portfolios:
Maintain Desired Risk Level
Due to market fluctuations, the value of different assets or currencies in a portfolio can change. These changes can potentially alter the risk profile of the entire portfolio. By rebalancing, you can ensure your investment portfolio remains aligned with your risk tolerance and goals.
Enhance Returns
Markets are inefficient and volatile. By periodically rebalancing, you can take advantage of these factors. Sell overperforming assets and buy underperforming ones to potentially enhance returns in the long run.
Discipline
Many motivated investors have a strategy they prefer to stick to. Rebalancing enforces a disciplined strategy, helping you avoid the common pitfalls of emotional investing, like chasing performance or panic selling during market downturns.
If portfolio rebalancing isn’t part of your portfolio management strategy, there are a few pros and cons to consider before trying it out on your own portfolio. Pros include risk management, a systematic approach to investing, the potential for higher returns, and avoiding emotional investment decisions. Cons can include transaction costs, time and effort, and difficulties in timing the market for optimal performance.
Tools for Rebalancing Crypto Portfolios
More DApps are developed every year to help crypto investors—both novices and experts—make better decisions about their investments, and that includes crypto portfolio rebalancing. Here are a few different tools for managing and rebalancing a cryptocurrency portfolio.
Google Spreadsheets/Excel
- Features: Google Spreadsheets and Excel are versatile tools and allow traders to manually track their cryptocurrency holdings, as well as calculate portfolio values, and determine the necessary transactions for rebalancing.
- Advantages: They offer flexibility and customization, enabling traders to create complex models and projections. They can also automate calculations using built-in functions and scripts.
- Disadvantages: Manual data entry can be time-consuming and leave lots of room for errors. These tools also lack real-time market data integration, making them less suitable for frequent rebalancing. Plus, it can take a while to determine which formula to use.
Crypto Portfolio Management Platforms
- Examples: CoinTracker, Delta, DeBank.
- Features: These platforms provide real-time tracking of cryptocurrency holdings across multiple exchanges and wallets, automatic rebalancing alerts, and detailed performance analytics.
- Advantages: They offer a user-friendly interface, automatic data synchronization, and comprehensive reporting features.
- Disadvantages: Some platforms may charge fees for premium features, and they might not support all cryptocurrencies or exchanges. While you get alerts, you still need to move between assets and wallets to conduct the necessary exchanges.
Automated Rebalancing Tools
- Examples: Shrimpy, 3Commas, and Quadency.
- Features: These tools automate the rebalancing process by connecting to exchanges via API, allowing traders to set rebalancing intervals and thresholds.
- Advantages: Automation reduces the need for manual intervention, ensures timely rebalancing, and minimizes the risk of human error.
- Disadvantages: They require trust in third-party services and may have limitations in terms of supported exchanges and assets.
Finally, There’s 3Balance
“How to rebalance” used to be a complicated query involving a lot of manual labor and the use of several different platforms. That’s where 3Balance comes in. 3Balance stands out as a unique self-custody tool for rebalancing cryptocurrency portfolios and is one of the easiest to use. It doesn’t just allow you to manage your portfolio. Whereas other DApps and programs require the user to manually execute their rebalancing trades on a CEX or DEX, 3Balance functions as the whole package. Here are some of its advantages:
- Multi-Network Support:
- Feature: 3Balance supports multiple blockchain networks, including Ethereum, Binance Smart Chain, Arbitrum, Optimism, and Base. Solana is also supported as a non-EVM network.
- Advantage: This broad compatibility allows traders to rebalance portfolios across different ecosystems seamlessly, providing greater flexibility and diversification.
- Integration with 1Inch and other liquidity aggregators:
- Feature: The platform leverages the biggest liquidity aggregators to facilitate efficient and cost-effective token swaps during rebalancing.
- Advantage: These integrations ensure optimal trading prices and minimize slippage, enhancing the overall efficiency of the rebalancing process. You don’t need to worry about deep liquidity.
- User-Friendly Interface:
- Feature: Threebalance offers a straightforward, three-step process for rebalancing portfolios, making it accessible to both novice and experienced traders.
- Advantage: The intuitive design reduces the complexity of rebalancing and encourages consistent portfolio management practices. No need to switch between tokens or assets. Threebalance works within a singular flow to swap assets and check their balances.
3Balance is free, try it now!
Manage your crypto portfolio like a Pro: set up your ideal allocations, swap multiple tokens in one flow and much more. Check it out!
