It might be not so smart, but you could make it smarter
TL;DR
- If you are a Hodler, try Smart Rebalance
- If looking for short time profit, try rebalancing by the ratio
- KuCoin has one of the simplest Smart Rebalancing bots
- Have you subscribed?
Hi folks,
hope you are doing well in this bear market (Not only crypto but all thing). So I have thought to shed some light on KuCoin’s free trading bots. Let's have a look today at Smart Rebalance.
What is a Smart Rebalance bot?
Let's think this way, you are a crypto newbie. You heard a random guy on the internet (definitely not me): Don’t Put All Your Eggs in One Basket. So you have decided to buy several cryptocurrencies e.g. CTB, HTE, SCK, LOS. Now you want to make a portfolio of those cryptos. Furthermore, you are a person of principle. Whatever happens, you want to have 25 % CTB, 25% HTE, 25% SCK and 25% LOS in your portfolio. You have heard that the crypto market is very volatile and prices fluctuate very often. You could have a look at your portfolio every 5 minutes and try to buy or sell your assets to keep the ratio even. Do you want to really do this? Or do you want to do a bot for you?
Smart Rebalance can assist holders in further increasing their returns. The core of this strategy is to increase the total amount of assets while maintaining the portfolio percentage basically unchanged. Some may wonder, what is the meaning of rebalancing? On the one hand, you can always stick to your expected portfolio percentage, on the other hand, the number of your tokens will grow through rounds of rebalancing.
How does a Smart Rebalance work?
Initial allocation: SCK(45%), RMX(30%), MSK(25%)
Before Rebalance: SCK(45.68%), RMX(29.52%), MSK(24.79%)
After Rebalance: SCK(45%), RMX(30%), MSK(25%) + 6.26 USDT
In this infographic, we can see how, when the price of the assets changes, also the distribution changes, therefore by the time of the next rebalance (12h in this example, which is based on real data) the excess of SCK was sold to then buy the needed amounts of RMX and MSK (although their prices also went up, it wasn’t enough to keep the distribution, they fell a little below the desired %). This way, SCK kept its value in relation to the total value of the portfolio at that time, and RMX and MSK got the coin's amount increased. Globally, the net value of the portfolio increased too.
Then, we can see the initial distribution and how, right before the rebalancing was executed (second chart), the % and the net value changed. After the rebalancing, this net value doesn’t get affected. Only the amount of coins is affected, and our portfolio is again perfectly balanced with our criteria and desire.
Rebalance Method
On KuCoin rebalancing could be done by coin ratio or by time. By the time, the period is available from 30 mins to 28 days. If you don’t want to rebalance at all, you could turn off this option. Now the question is what is the best method for rebalancing?
Best optimization method?
Honestly, there is no best optimization method. The answer is, it depends. However, it depends on the market. If you rebalance too early (every 30 mins), you will buy and sell the assets often. That means you have to pay the fees for that. If you rebalance by every 24 hours, it could happen that by the time of rebalancing the market has stabilized, and you were not able to utilize the volatility.
If you decide to optimize the ratio, and you put the threshold by 4%, it could happen that, the asset only increases by 3.5%, and you miss the chance of rebalancing.
Nevertheless, if you look for short time profit, especially in the bear market, volatility is low and the market moves mostly sideways, rebalancing by ratio could be the best option.
On the contrary, if you want to increase your profit and buy & sell less, try one of the rebalancing methods by time, which better fits you.
Could we do that better?
Yes, if you want to leave the hustle of rebalancing, you could turn it off. You could do the rebalance by yourself after your portfolio reaches a profit of x % you could get notified and rebalance on your own.
Another way to make the most is to have a look at the market. If an asset goes high, you could sell this asset, e.g. for USDC/USDT. What you have to do is reduce the asset in percentage and increase the USDC/USDT percentage, leaving the other asset unchanged. By comparing the current price and the average buying price, you could make the most of that.
