Rebalancing vs. HODL - Which Strategy Drives Higher Crypto Portfolio Returns?

Portfolio rebalancing is a strategy that has been used by investors for decades. Many are adopting this approach when looking after their crypto portfolio's. This article provides a comparison of how rebalancing performs when compared to holding.

Getting Started

To begin with a rebalancing strategy, an investor must first determine how much of their portfolio they want to allocate to each asset. In the case of cryptocurrencies, each asset would be a coin. These allocations are simply the percent of each coin that should be represented in the total value of the combined portfolio. When it is time to rebalance the portfolio, the coins are traded such that the value held in each asset is once again equal to the percentages that were originally specified.

Periodic Rebalancing is a common investment strategy that rebalances portfolios based on a fixed time frame interval.

Rebalance of Crypto Portfolio


Figure 1: This image shows a visual representation of what happens when a portfolio with equal weights is rebalanced.

Shrimpy.io Analysis

In order to construct a comparison of how well rebalancing performs when compared to holding, over 20,000 backtests were analyzed. Armed with data collected from cryptocurrency exchanges, this study was able to paint a fair picture of how rebalancing as a strategy stacks up to holding.

Figure 2

Figure 2: The x-axis is the percent increase of a portfolio that had rebalanced instead of held. The y-axis are the number of backtests that fall into each percent range. We observe a median performance of 64% across all backtests.

The results above include aggregate performance data of the crypto market, and demonstrates the impact of rebalancing on a portfolio.

Figure 3

Figure 3: Separating the backtests by portfolio size (2-10 assets) and rebalance period (1 hour - 1 month) shows the advantage of frequent rebalances with a large portfolio. Each value in the grid is the median performance increase of 1,000 backtests of that portfolio size and rebalance frequency. A value of 18 means the median of that group performed 18 percent BETTER than buy and hold. 

We were able to identify some interesting conclusions from these results.

We noticed a positive correlation between performance and a shorter rebalance period. Overall, portfolio results tend to improve with a shorter rebalancing interval. Our results show that automated hourly rebalancing is by far the most successful strategy when compared to all other rebalance time periods.

We also found that performance is directly correlated to portfolio diversity. As portfolios become more diverse, their overall portfolio performance tends to improve as well.

Tax Implications (US Specific)

Crypto-to-crypto trades are treated as “taxable” events by the government. 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.

You can use CryptoTrader.Tax to automate the crypto tax-reporting process.

Automated rebalancing with Shrimpy.io

Objectively, active periodic rebalancing is a better investment strategy than hodling (buy-and-hold).

As a completely free service, Shrimpy not only has portfolio tracking capabilities, but also lets users automate their entire cryptocurrency portfolio strategy in just a few easy steps. All users have to do is select their desired assets and allocations within their portfolio. Once connected to an exchange account, Shrimpy takes care of the rest for its users.


This article was provided by Shrimpy.io.

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-The Shrimpy Team