Crypto Rebalancing Bot Guide

The world is coming around to understanding the value of cryptocurrency and digital assets. It is still looking to value them in a monetary fashion, but it realizes that it has some sort of value. Sure, there is quite a bit of speculation going on when it comes to the various digital assets present within the world right now.

Will they all preserve value over the long term? Only time will tell. But we do know for a fact that there are several crypto assets that will hold proverbial water and will retain value over the long haul.

Regardless of what is happening in the future, there are those who are looking at how to earn with trading here and now. If you are one of these people who are looking at investing now to obtain more value over the short term, there are various opportunities available to you.

These opportunities come in many forms and with various techniques. You are likely aware of the fact that you can trade in a manual fashion or in a more streamlined fashion. If you are trading manually, you are doing all of the work by yourself. If you are doing so in a more automated fashion, you will find that you are doing less of the heavy lifting.

If you are looking for further opportunities, you will see that crypto rebalancing can be done in an automated way using the special bots. Here is what you must know about crypto rebalancing bots and how they add value to your overall portfolio and potential net worth.

💡 The concept of crypto rebalancing and its immense value

The truth is that you are in this sector or asset class for various reasons. You are in it to earn and increase your net worth. But you are also in it for political and philosophical reasons. While the latter may be more abstract, the earlier aspect will come with specific goals. It will also have particular criteria. For instance, you will want to obtain a certain level of reward while taking on a portion of the risk.

You may even look at how you want to allocate funds to certain segments of the crypto market. For instance, you may allocate a certain amount to store of value assets, a bit to ecosystems and platforms, and some to stablecoins.

That is called investment allocation.

The goal is to make sure you diversify and mitigate your risk. At the same time, the assets that should rise in value should provide you with an increase in your captured funds. For instance, if you own Bitcoin at $100 and it goes to $100,000, you will have realized a massive gain in your store of value assets.

But of course, if you wanted to capture the value in dollars, you would have to sell it and use those funds for your various purposes. You could re-invest in different assets like Ethereum or other cryptos. Then again, you could allocate it to your personal consumption.

In the end, you are looking at your initial purchase price and then the ideal rise in price. If your investment allocated is growing, that’s fantastic, if it is shrinking, it may be best to look at a different way to approach the market.

At the same time, if it is growing in value, then it may be time to lower your risk and take a portion of value out and allocate it to a different asset. In this scenario, the one where your overall capital is growing, you are minimizing the risk of the loss of your overall gains.

Remember that gains are merely listed on paper until you capture them and convert it into other assets. If you are invested in a hard asset like Иitcoin, it preserves its value over time and remains a concrete asset.

As each different asset moves up or down in value, you will see that the asset grows or diminishes. The growth or diminishment will change the percentage allocation present in your investment and will modify the risk profile for each asset as well.

As such, you will see that portfolio rebalancing is all about ensuring to have a certain level of exposure to a certain asset and controlling risk. You will purchase and divest assets so that it only makes up a certain percentage of your overall portfolio.

For instance, if Bitcoin had a huge run-up from $1,000 to $100,000 and it makes up a large portion of your portfolio, you will likely rebalance. The rebalancing will take place because you want to minimize your risk. If you want to have Bitcoin at a 100% allocation, then you are all in. But if you want to have Bitcoin at 90% or 50%, then you will trim your position in Bitcoin.

💰 Can I actually earn when rebalancing my portfolio with bots?

Rebalancing is rather a straightforward plan that boils down to divesting a portion of your winners and purchasing more of your assets that are not doing as well.

People will sell a certain digital asset that is doing fantastic and will likely do so over the long term because they want to minimize their risk of loss. They are essentially taking their chips off the table and making sure to keep their portfolio with the right investment allocation. This leads to an overall expected balance.

You can actually earn as you rebalance your crypto portfolio with bots.

It helps you to stomach risk and keep your risk to a level where you are quite comfortable. Your risk appetite can move in different directions as your life changes. Various plans in the traditional finance world will account for portfolio rebalancing for overall risk mitigation. It will change at a certain level, which helps keep these portfolios in a certain state of harmony.

Investors love it because it can reduce the overall volatility in the portfolio, helping to promote peace of mind and stability. At the same time, it accounts for your overall risk appetite.

The critical idea here is to make sure that you make sure to understand your digital asset investments, recognize patterns, and will conduct rebalancing accordingly. Those who know how to conduct their portfolios will rebalance in a specific way so that they can have long-term gains without significant risk.

Remember that the earning comes from divesting the assets that have rapidly increased in value. When you sell these digital assets, you are capturing the gains on these allocations, and keeping it so that you retain gains.

The main point to think about here is to see how often you should rebalance and the other costs you might incur when rebalancing with bots. How much do you have to account for in paying taxes on your digital asset sales and divestitures? How about fees that you can incur from exchanges and other entities for purchasing and selling these assets.

Remember that rebalancing continues to move forward and will take action. The more actions that one takes, the more expenses that may be involved. As such, it is essential to look at the overall costs involved in rebalancing.

It is essential to look at the long-term prospects of assets when utilizing this plan. It is necessary to see the long-term prospects of the digital asset and your current goals when it comes to value appreciation.

🤖 Why it is good to use a bot for rebalancing crypto

The reason why it is fantastic to use automation for rebalancing your crypto portfolio is that it enables you to conduct this activity quickly. You do not have to sit there and do it manually. Instead, you can rely on automation to conduct the process for you at certain time intervals.

It helps you to have peace of mind, to keep your portfolio at the desired level, and to monitor assets as they rise and fall at any given moment. It is critical to see that it makes investors purchase assets at a favorable time and sell it at a favorable time as well.

That is the philosophy that is baked into this rebalancing process. It is about looking at what can happen and seeing where the value of digital assets are at right now. Instead of looking at only the momentum one’s and doubling down on momentum, individuals are looking at which may rise in the future, even though it trades cheaply now.

The rebalancing bot gives you simple rules to sell at given times and to purchase assets at given times. It helps you to become a more disciplined investor while being more hands-off.

Data does show that rebalancing at certain times can prove to be more of a powerful return contributor than mere holding.

👎 What are the drawbacks of crypto rebalancing bot strategy?

Here are a few of the drawbacks of the automated crypto rebalancing strategy.

You can sell prematurely: 

The problem with rebalancing too early is that you can lose out on potential gains. Remember that you are looking to capture value when the asset rises. If you have several Bitcoins that you purchased at $100 each, then you see that it went to $100,000, then you would see that the holding strategy worked.

But if you saw it go from $100 to $1000 and sold a portion of it to rebalance, you may have found yourself missing out. Of course, even here, we have to account for the time horizon and how often you are conducting your rebalancing.

Purchasing the wrong asset: 

The problem with bot rebalancing is that the asset on the uptrend may be the trade to make. The asset that is going down in value may be going down because of structural deficits. If you are seeing structural deficits but blindly sell your Bitcoin and buy an asset that is decreasing in value due to crypto rebalancing strategies, you may be making a really poor trade.

Encourages laziness:

This strategy can encourage laziness in thinking. If you are only looking at your portfolio and merely selling momentum-oriented assets and buying those that are decreasing in value, it can create negative habits. The market is not only about what is going down and what is going up. It is about why it is going down and why it is going up.

If you are able to look at these aspects over the long term, you may modify your actions. Always do further research to make sure to preserve your assets and overall portfolio value. The idea is to stay sharp and active as you participate in the markets.

Taxes are an issue:

It is always essential to think about taxes. Taxes are pesky but they are a fact of life. If you are taxed at various levels depending on when you sell, you can see that it can carry high costs or low costs. Either way, it is necessary to know that you will incur different costs. The more you sell, the more likely it is that you will obtain taxes.

If you sell soon, according to tax laws in the US, you will incur higher taxes. It is because selling sooner than one year can increase your tax liability. The same tax laws may apply to other assets as well. Indeed, actually accounting for taxes can be quite a hassle with this strategy.

Fees in general:

What about the fees that you will incur in general? You are certain to incur various fees as you trade with the bot. Whether you are trading on Binance exchange or others, you will likely incur some fee per trade. The more movements your bot makes, the more you can incur fees.

👉 Use crypto rebalancing bots wisely

Think twice about all of the costs that you can incur when utilizing this strategy. If you are looking to conduct a crypto rebalancing bot for your portfolio, really think about what you are doing.

It is essential to make sure that you are looking at the bigger picture so that you can obtain all of the rewards present in this strategy. Of course, each strategy will have some sort of drawback, it is up to you to understand when to deploy certain plans and strategies.