Testing a BTC/USD Rebalancing Strategy

27 Feb, 2019 CryptoSurf

Disclaimer: Nothing contained in this article should be considered as investment or trading advice.

Let’s face it, HODLing can be pretty boring, specially when you see those moonshots and nosedives within the crypto market. 

One way of making HODL a little more exciting is by implementing a rebalancing strategy in your portfolio.

Rebalancing is a strategy that consists in periodically buying or selling assets in a portfolio to maintain an original desired level of asset allocation.

What I’m testing on Niffler is Threshold Rebalancing, which takes place only when the percent allocation between any two assets crosses a threshold. For example, with a band of +/-1%, if one asset deviates at least 1% more or less of the target portfolio allocation, the portfolio is rebalanced.

In this case, my BTC/USD portfolio has a target allocation of 50/50. A rebalance would happen as soon as one of those assets is equal/less than 49%, or is equal/more than 51% of the total portfolio value.

How to start

Obviously, you would need to buy 50K worth of BTC with your 100K Play USD Starting Portfolio.

In my opinion, you should never buy all at once. Cost Averaging is the way to go, however, don’t take too long on averaging in, since this is not a strategy based solely on Cost averaging.

The way I did it is by averaging in 10K/day, for 5 days. Once you get to a 50/50 split, simply hold. Whenever the 2 assets deviate 1% or more from the 50/50 allocation (meaning they are at least at a 49/51 split) simply rebalance to a 50/50 allocation again.

How to rebalance

Don’t we all check our portfolios almost every day? Well, adding a little simple math when it’s needed isn’t that bad, and, honestly, it feels like you are trading, even though you are doing it completely passively. Meaning, you buy and sell assets whenever your portfolio tells you, not whenever you want to. So your emotions are in check, which is the most important thing when it comes to trading and investing.

So, what I do is check my portfolio every morning. If one of the assets shifted to at least 49%, and consequently the other shifted to at least 51%, I subtract the value of the 49% asset from the value of the 51% asset, divide that by 2, and add that to the 49% asset. So basically, I take 1% of the value from the best performing asset and add it into the worst performing asset.

This method is basically a passive way of buying low and selling high. In the beginning, you won’t see significant profits, but in the long run, those little profits will add up and compound, thus outperforming a simple HODL strategy.

I like to keep things simple, so I will simply keep track of the amount of both BTC and USD in my portfolio to know when I actually make profits:

My starting point was a 50/50 balanced 100K portfolio of 13.5321 BTC / 50,000 USD. 

As soon as the unit amounts of both sides will be higher, that will simply prove that I’ve locked in some profits. 

So for example, if the starting point is 13.5321 BTC / 50,000 USD, and after several rebalancing trades I end up with, let’s say, 13.6321 BTC / 50,400 USD, I would know I’ve made a profit of 0.1 BTC / 400 USD.

At the time of writing, my portfolio is balanced at 12.9262 BTC / 52,415 USD, with a total value of about $104,230. Since the start, I’ve only rebalanced twice by selling some BTC. Even though I’m in profit value wise since BTC went up in price and have more on the USD side, I have less BTC than when I started, so I still won’t declare profits until I rebalance back towards BTC at least twice. When that happens, if the USD amount is more than 50,000, and the BTC unit amount is more than 13.5321, that’s when I would actually make profits. 

Stay tuned to see how this goes. Follow me on Niffller to stay updated on my strategies. 


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Crypto Position Trader & Investor. Love creating and testing long term trading and investing strategies. Only Cryptos I believe in are BTC, LTC and DGB.

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User Avatar CryptoSlashy cool stuff!
7 Mar, 2019
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User Avatar SteemitGuy Isn’t this going to kill you in a bear market? USD value of your BTC drops, so you throw more good USDT into the declining BTC. Let’s say someone had done this for the last year, they would still be in deep losses, no? Or is it depending on how many days / mornings BTC actually “opened” green? In that case it’s just a red vs black strategy, isn’t it?
27 Feb, 2019
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CryptoSurf @SteemitGuy Sorry for the late response. It really depends on what your goal is: Earn more BTC or more USD. If you want to earn more BTC, this strategy is actually perfect in a bear market, because you keep buying cheaper BTC for your USD and constantly having a lare cash position during a bear market is key. However, If you aim on getting more USD, then yes, this would only be good in a bull market, not in a bear market.
5 Apr, 2019
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User Avatar SMINEM Well done and nice read. Still learning and this helps.
27 Feb, 2019
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User Avatar Andre Interesting idea.:money_mouth_face:
27 Feb, 2019
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CryptoSurf @Andre Thanks!
5 Apr, 2019