Threshold Rebalancing

Threshold rebalancing is a systematic approach where portfolio adjustments are triggered only when an asset's weight deviates from its target by a pre-set percentage. This method is often more cost-effective than time-based rebalancing because it reduces the frequency of trades, thereby lowering transaction costs and slippage.

It allows the portfolio to capture momentum when an asset is trending while still enforcing discipline when the allocation drifts too far. In crypto, where trends can be strong and prolonged, threshold rebalancing can be an effective way to manage risk without over-trading.

The choice of threshold is critical; too wide a threshold may expose the portfolio to excessive risk, while too narrow a threshold may lead to excessive transaction costs.