Rebalancing means adjusting one’s investment portfolio to maintain a desired asset allocation or risk exposure.

This process involves periodically buying or selling assets within the portfolio to bring it back to its intended target allocation.

In crypto investment, market volatility can significantly alter the distribution of assets in a portfolio due to fluctuations in the prices of various cryptocurrencies.

Investors often set specific allocations for different cryptocurrencies or tokens based on their risk tolerance and investment objectives.

As the values of these assets fluctuate over time, the portfolio’s composition may deviate from its initial intended allocation. Rebalancing aims to restore the original proportions by buying more of the underrepresented assets or selling some overrepresented ones.

This strategic realignment allows investors to manage risk and maintain a portfolio that aligns with their investment goals.

Rebalancing can be done periodically, such as quarterly or annually, or triggered by predetermined thresholds where the allocation deviates beyond a set percentage.

It helps investors avoid overexposure to certain volatile assets and promotes a disciplined approach to investment management within the dynamic and ever-changing crypto market.