Rebalance your portfolio, key points
The way to navigate through a cryptocurrency bull market cycle is to rebalance your portfolio.
By rebalancing your portfolio, you will be able to increase your returns while limiting downside risk.
Let's discuss this.
I often talk about the concept of rebalancing portfolios, which is the main lesson I learned from the last cycle about what you should do.
The reason is that if you don’t have a strict plan in mind, it’s very likely that you will suffer heavy losses from selling too early or from selling too late due to the difficulty in predicting how high or low the market will go.
Well, there is a practical guideline that can ensure you avoid both situations.
This is achieved through rebalancing.
Let’s take an example in this regard, assuming your portfolio balance is as follows:
- The total investment in cryptocurrency is $100,000.
- From this portfolio, you will gain $50,000 in #Bitcoin.
- The remaining $50,000 will be allocated to #Altcoins.
- You have no other investments.
Assume you have invested all your funds in the Altcoin market, and Altcoins have significantly outperformed Bitcoin. Altcoins have increased by 5 times, while Bitcoin remains flat.
Your portfolio balance will be:
- $250,000 in #Altcoins.
- $50,000 in #Bitcoin.
- Your total portfolio has turned into $300,000.
Of course, this is a good way to return, and as a benchmark, you should have a goal of outperforming Bitcoin by trading Altcoins, otherwise, it usually makes no sense.
However, once you start making profits, it’s not really about making more profit, but rather about preventing you from losing those gains (which happened to me after the last cycle).
What you should do is keep your risk tolerance in mind. If your general benchmark is to allocate at least 40% of your portfolio to Bitcoin, then you should develop the habit of rebalancing your portfolio monthly.
In our example, this means:
- Sell $70,000 from your #Altcoins to acquire Bitcoin, resulting in the following allocation:
- $120,000 in Bitcoin
- $180,000 in Altcoins
Like this:
- You are locking in profits into safe assets.
- Once the market reverses, you can flexibly reallocate funds back to Altcoins.
In your Altcoin portfolio, you can basically do the same thing. If one of the Altcoins performs exceptionally well, you may be able to shift those profits toward Altcoins that have not moved at all.
When to start taking profits?
This is important because you need to ensure you start taking profits at the right time.
For me personally, now is the time when Altcoin prices are close to the March peak. This is my first reference point to start expanding and considering rebalancing preferences.
What should I do if things get worse?
I usually don't mind things getting higher because I still have my allocation, just less of it.
If the price of Altcoins rises, the risk increases, and ultimately my goal is to outperform Bitcoin, that's it. If I keep doing this, then congratulations to myself, moving on to the next step.
What is my base pair?
This is also a good question that has been asked recently.
Currently, my base asset is ETH. I believe Ethereum will significantly outperform Bitcoin in the next year, so I prefer to continue holding Ethereum.
However, this is subject to change. Once Ethereum starts to tilt upward, I might lean more towards Bitcoin, or I could even lean more towards USDT because I think the market will adjust or complete the cycle in the short term.
To reiterate, selling Bitcoin for USDT means that my goal is to earn more Bitcoin through this action.
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