The recent collapse of LUNA and the UST stable coin reminds us of how unpredictable crypto can be. In this crypto market downturn, prices are tanking, with most cryptocurrencies now at over 80% off their all-time highs. To add to that, the Fed’s hawkish approach to interest rates has many analysts projecting that the global economy could be headed for a recession.
Essentially, we are in an environment where the entire financial system is full of uncertainties, and stable coins that act as a safeguard aren’t that stable anymore. Anyone who bought UST as a hedge against the market downturn can fully attest to this fact.
Crypto rebalancing can be the answer to this predicament. A crypto rebalance entails analyzing your entire cryptocurrency portfolio to manage risks better. There are several ways to rebalance your crypto portfolio to lower risks while maximizing your potential for gains.
Best Crypto Rebalancing strategy - Invest in a crypto rebalancing bot
In case you are wondering, yes, a crypto rebalancing bot is a thing! A bot can actually understand the intricacies of the market, including its potential risks and rewards. These bots have gotten to a point where they can do crypto rebalancing better than the average cryptocurrency expert.
So, why choose a crypto rebalance bot over any other approach to cryptocurrency rebalancing? Besides the fact that a bot has no fear and greed biases, it can also balance your portfolio in real-time. Essentially, you can be sure that regardless of how the market moves, your crypto portfolio is always set in a way that gives you the potential for maximum gains at minimum risk.
A crypto rebalancing bot is a perfect tool for someone who does not want to spend all their time behind a computer analyzing charts while at the same time enjoying all the benefits that come with cryptocurrencies.
But of course, you have to train this bot to understand your preferences when it comes to trading. Therefore, you should make a list of assets that you’d prefer to invest in based on market conditions. Once you have that, the crypto trading bot can accordingly adjust your portfolio based on rules that you set. So, now we come to the next question — which asset should have a spot in your ideal “crypto rebalance” sheet?
In a market downturn like this, people prefer to go heavy on crypto bluechips. What are they? Glad you asked!
Best Practices of Crypto Rebalancing: The Bluechips
When rebalancing a crypto portfolio, always keep in mind that not all cryptocurrencies are made equal.
Like every other market, the cryptocurrency market operates in bull and bear cycles. However, if history is anything to go by, not every coin is worth buying the dip. If you go back to 2017, there were many high-flying altcoins at the time that never survived the 2018 crypto crash.
Since no one has a crystal ball on where the market can go long term, it is best to pivot towards crypto blue chips in these times of heightened uncertainty.
So, what exactly is a blue-chip crypto? These are cryptocurrencies that have the potential to be around for decades and be much bigger than they are today. You are probably wondering, how can one be sure of such when the market is only a decade old?
The cryptocurrency market may be only a decade old, but almost everyone with some knowledge of crypto knows that Bitcoin is not going anywhere anytime soon. It is decentralized, which means it is censorship-resistant, and it is growing in adoption all across the globe. Essentially, the older it grows, the more people accept it as a substitute for gold as a store of value.
When trying to rebalance a crypto portfolio, Bitcoin is an obvious choice for a cryptocurrency that should carry weight. While Bitcoin is a pretty obvious choice for cryptocurrency blue chips, how do you select a blue chip for a crypto rebalance move in this saturated market?
You can use a few parameters, and if you don’t deviate out of greed, then the chances are that you will do a great job at crypto rebalancing.
Let’s now look at some of the main ones.
Levels of adoption
For an altcoin to be considered a blue-chip and worthy of heavy weighting when doing a crypto rebalance, it needs to have a high level of adoption. This is usually an indicator that it is not just a speculative asset but something with actual real-world usage. For instance, when crypto rebalancing, Ethereum would be an obvious choice to give significant weight. Despite the market correction, the high levels of Ethereum adoption drive the demand for it.
Once you are sure that a cryptocurrency has a healthy level of adoption, the next key factor to consider when choosing the best crypto rebalancing strategy is tokenomics. Simple economics dictates that when something is in short supply and growing demand, the price always goes up over time.
When applying this metric, a cryptocurrency like Binance Coin looks like an obvious choice to give significant weight when crypto rebalancing. That’s because it has decreasing supply, and its demand has been on the rise over time.
The cryptocurrency market is full of risks, and among the biggest ones is a regulatory crackdown. With the recent collapse of LUNA, there is a chance that regulators will take an even bigger interest in cryptocurrencies. It is best to give weight to cryptocurrencies that are safe from a regulatory crackdown for successful crypto rebalance.
You are probably wondering, how do you tell a cryptocurrency has a low risk of being targeted by regulators?
While there is no sure way to go about it, there are hints from regulators that you can use. One of them is the statements by key figureheads in the regulatory space. For instance, in the U.S, key government figures have constantly raised concerns about synthetic tokens that are designed to mirror the stock markets. Key figures in the U.S government and elsewhere have also been quite vocal in their caution against algorithmic stable coins.
When crypto rebalancing, it is best to give cryptocurrencies that fall under each of these two categories low weight. Instead, when doing a crypto rebalance, give weight to highly decentralized cryptocurrencies as they seem to be getting positive vibes from regulators. For instance, Bitcoin is a highly decentralized cryptocurrency that has a very low risk of being affected by the regulations of any country.
Potential for explosive growth
Up to this point, our focus has been on giving more weight to cryptocurrencies that have the potential for market longevity. But if you know anything about investing, you probably know that the lower the risk, the lower the potential for explosive growth.
Even as you look to protect capital, set aside a portion of your portfolio for high-risk investing. You just never know how things can play out long term. For instance, anyone who risked just $100 in Shiba Inu is a multi-millionaire today. Provided they sold of course..
This means no matter how bearish the market looks, when looking to crypto rebalance, factor in a few risky but high potential cryptocurrencies. If they fail, it won’t affect your lifestyle, but if they work out, your lifestyle could change forever – in a good way.
Such life-changing cryptocurrencies are usually below the #1000 rank on CoinMarketCap. That’s because they are typically new to the market and are yet to gain traction, and that’s where the opportunity is for those ready to ride the rollercoaster.
Hedgehog: Your-Robo Advisor
If crypto rebalancing sounds a bit complicated to you, you don’t have to worry! Hedgehog makes reblancing extremely streamlined. You can connect all your wallets (yes, those on other exchanges too!) and keep track of all your assets in one place. Then, you can use our constantly updating balances to deploy your ideal crypto rebalancing strategy.
And you didn’t hear this from me.. But we also have a crypto rebalancing bot in the works.. But let’s talk more about that when we have done some more work on it, shall we?
Let’s ReBuild Your Portfolio
So, should you rebuild your crypto portfolio? As we have discussed above, this could be a good idea at this time. There are so many risks in the macro-environment that could negatively affect your crypto portfolio. Since no one knows the future and you can’t exactly tell which cryptos will do better than the rest, it is always best to crypto rebalance from time to time. The goal is to stay safe while also maximizing returns once the market turns bullish.
Sign up with Hedgehog and let’s start rebalancing!
Lipsa Das is the founder of Spiritwish, and you can find her on Twitter, LinkedIn, and Instagram.
Of course, don't forget to subscribe to the weekly Hedgehog newsletter!