Optimizing Cryptocurrency Portfolios: A Comparative Study of Rebalancing Strategies

Abstract

Objective – This study aims to contribute to the field of cryptocurrency portfolio management and rebalancing strategies by empirically investigating the impact of different allocation frequencies and threshold percentages on the risk-adjusted returns of cryptocurrency portfolios. Methodology/Technique – Utilizing a simulation of 10,000 cryptocurrency portfolios comprising seven assets, including Ethereum (ETH), Bitcoin (BTC), Tether (USDT), Litecoin (LTC), Solana (SOL), Dogecoin (DOGE), and Polygon (MATIC), this study examines and compares the effects of different allocation frequencies (daily, weekly, and monthly) in time-based rebalancing and various threshold percentages (5%, 10%, and 15%) in threshold-based strategies on the portfolios' risk-adjusted returns, using the Sharpe ratio. The performance of these strategies is also compared with a passive buy-and-hold strategy. Findings –The research reveals statistically significant differences in the risk-adjusted returns between the buy-and-hold strategy and the daily rebalancing and threshold-based strategies with 5% and 10% threshold percentages. The daily rebalancing strategy demonstrates a higher Sharpe ratio, while lower threshold percentages lead to better risk-adjusted returns. Novelty – These empirical findings, using a simulation of 10,000 cryptocurrency portfolios, provide valuable insights into optimizing cryptocurrency portfolio performance through rebalancing strategies. Additionally, they highlight the effectiveness of implementing rebalancing techniques in cryptocurrency portfolios, contributing to the understanding of rebalancing optimization in this domain. Type of Paper: Empirical JEL Classification: G11, G19. Keywords: Cryptocurrency; Mean-Variance Optimization; Portfolio Management; Rebalancing Strategies; Risk-Adjusted Returns Reference to this paper should be made as follows: Sornmayura, S; Sakolvieng, N; Numgaroonaroonroj, K. (2024). Optimizing Cryptocurrency Portfolios: A Comparative Study of Rebalancing Strategies, J. Fin. Bank. Review, 8(4), 01 – 16. https://doi.org/10.35609/jfbr.2024.8.4(1)