The following study will evaluate the historical performance of a threshold rebalancing strategy on the Binance exchange. The goal of this study is to better understand how threshold rebalancing stacks up against other strategies like buy and hold (HODL) and periodic rebalancing. The results of this study can help us make better decisions during the portfolio construction process. Not only is it important to consider the assets which are included in any portfolio, but also the rebalancing strategy which you use to maintain your portfolio allocations.

Threshold rebalancing is a strategy which has recently emerged onto the cryptocurrency portfolio management scene when it was integrated into the Shrimpy application. In conjunction with other advanced settings, it provides a powerful set of portfolio management controls which haven’t been available anywhere else in the cryptocurrency market.

Read more about rebalancing here.

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Study Setup

This study will evaluate both threshold rebalancing strategies ranging from 1% to 50% as well as periodic rebalancing strategies ranging from time periods of 1 hour to 1 month.

The following constraints were used when performing each backtest:

Trading Fee: .1% (Highest Fee for Binance Users)

Data: Exact bid-ask pricing data was collected directly from the Binance exchange.

Data Time Period: June 21, 2018 – June 21, 2019.

Portfolio Asset Distribution: Each asset is evenly weighted in the portfolio.

Trading Route: All trades are routed through BTC.

Asset Selection: Assets were randomly selected from the pool of available assets on Binance.

Initial Investment: A $5,000 initial investment was used for each backtest.

Number of backtests: Each threshold and rebalance period was examined with 1,000 backtests.

Threshold Rebalancing Strategy: The strategy use for threshold rebalancing is outlined here.

A detailed discussion on the backtesting procedure can be found in our previous study here:

The Best Threshold for Cryptocurrency Rebalancing Strategies

Results

In this study, we will evaluate 15 different rebalance settings. Beginning with a 1% threshold rebalance, we will systematically increase the threshold up until we reach a 50% threshold. After we have examined the threshold rebalancing results, we will investigate how periodic rebalancing compares to these results. This will be accomplished by running backtest for hourly, daily, weekly, and monthly rebalances.

1% Threshold