Smart Portfolio Adjustment Help Document

1. What is Smart Portfolio Adjustment?

Smart Portfolio Adjustment is a trading strategy derived from the coin-based investment mindset. It involves adjusting the positions within a portfolio to allow the proportion of digital assets to fluctuate within a specific range, returning it to its initial setting. When a particular digital asset’s price surges, profits are distributed to other digital assets in the portfolio through adjustment. As a result, the portfolio’s overall value can increase relatively steadily. When prices fall, the portfolio’s decrease in value can be less than that of a particular digital asset, eventually leading to relatively stable earnings.

2. How does Smart Portfolio Adjustment achieve arbitrage?

Arbitrage is achieved by taking profits from assets that have appreciated rapidly to invest in those appreciating more slowly. This rebalances the portfolio and uses the profits from one asset that has risen in value to invest in another, creating profits from profits and ultimately gaining additional earnings. The following diagram demonstrates the arbitrage process:

BTC and ETH. When opening a position, the value ratio of the two assets is 1:1, i.e., each is 50U.

Note: Users can set multiple asset combinations in the Smart Portfolio Adjustment, each with different ratios. The case is only for demonstration convenience, so we adopted the most basic setting of two assets.

Subsequently, the price of ETH rises to 80U, while BTC rises more slowly, only to 60U. At this point, the value of ETH is 20U more than that of BTC. Using Smart Portfolio Adjustment to return the two to their initially set equal values, ETH would need to distribute half of its profit to BTC.

That is, sell 10U of ETH and buy 10U of BTC. Subsequently, the value of both becomes 70U, returning once again to the initial 1:1 value ratio. However, at this point, the user’s total holdings have become 140U, 40U more than the initial 100U. This 40U is the profit from Smart Portfolio Adjustment.

3. Why does Smart Portfolio Adjustment sell rapidly appreciating assets and buy slowly appreciating ones?

This is done to maintain balance in the assets. This is because the relative prices and price ratios of the various currency assets in the Smart Portfolio Adjustment are long-term stable. If one asset rises too fast relative to another, it indicates that the growth of this asset has reached its peak, and it’s time for the next asset to grow. Through the pursuit of assets in the position, using the profits of the strong asset to subsidize the relatively weak one, support the weak with the strong, and ultimately grow together, you can ensure more gains and fewer losses.

4. Under what circumstances does Smart Rebalancing benefit?

Profits increase with accelerating rises, and losses increase with accelerating falls. When all assets are appreciated to varying degrees, they may have different magnitudes of increase, but all will ultimately benefit. (See example in section 2)

If one asset or several assets continue to fall, forming a Smart rebalancing portfolio can be a nightmare. This is because other assets must constantly compensate for the losses of coins with severe depreciation, using their profits and even their principal. As a result, the overall assets will only decrease. Therefore, users need to be cautious when selecting trading currencies.

For example, a Smart rebalancing investment portfolio has 2 types of assets: BTC and ETH. When the position is opened, the value ratio of the two assets is 1:1, i.e., 150 U each.

Subsequently, both suffered losses, with ETH losing more and dropping to 110 U, while BTC’s loss was less, dropping to 130 U. At this point, the value of BTC was 20 U higher than that of ETH. To re-establish the initial set value equality through Smart portfolio rebalancing, BTC would need to spend 10 U to purchase ETH.

At this point, both have dropped to 120 U, resulting in a total loss of 60 U for the asset portfolio.

5. Which cryptocurrencies are suitable for Smart Portfolio Rebalancing?

Cryptocurrencies with long-term value are suitable for Smart rebalancing. It is generally better to choose combinations of cryptocurrencies that have large market values, or whose prices can maintain a long-term stable relationship and relative certainty, such as BTC and ETH. These are currencies that have withstood market tests and can survive in the long run. If you choose a coin that doesn’t appreciate or even depreciates, then all appreciating coins will be sold off to subsidize the purchase of this depreciating coin, ultimately leading to a loss in the entire asset portfolio.

Of course, if you need to set up multiple asset portfolios, it’s generally advised to choose different types of cryptocurrencies for staggered entries at low positions. This is because coins of the same frequency will maintain a consistent pace of rise and fall. They either rise together or, once they fall together, a significant loss will be incurred.

6. Smart Rebalancing Operational Guide

Navigation Bar > Quantitative Copy-Trading > Quantitative Strategy > Create New Strategy > Smart Rebalance > Create Strategy > Configure Parameters > Click Create

Explanation of Parameters

Add Currency: Add the currencies you want to hold for Smart rebalancing. At least two currencies must be selected for Smart rebalancing, supporting up to 10 currency combinations.

Equal Division: Clicking ‘Equal Division’ will evenly distribute the chosen currencies’ holding ratios, as shown in the example (Kind reminder: The holding ratio can be manually adjusted according to your preferences for each currency, but the total holding ratio should equal 100%).

Total Investment: The total investment must be greater than or equal to the minimum investment, and is related to the number of currencies chosen in the portfolio.

Use Existing Digital Assets: Use digital assets and USDT in your spot account for investing.

Rebalancing Period: Within the set time period, the portfolio’s holding ratio will change with the fluctuation of asset prices. When the rebalancing time is reached, the portfolio’s holding ratio will automatically adjust to the initially set ratio.

Select Rebalancing Threshold: When setting a rebalancing threshold, rebalancing is triggered when the set rebalancing time is reached, and a single currency’s holding ratio changes more than the rebalancing threshold, while also meeting the above two conditions. The holding ratio is adjusted to the initially set ratio. If a rebalancing threshold is not set, when the set rebalancing time is reached, the portfolio’s holding ratio will be adjusted to the initially set ratio.

7. Smart rebalancing period and threshold setting examples

Assume that your current investment portfolio contains 2 types of assets: BTC and ETH. Your initial asset proportion is set at 50% for each. If the total value of your investment portfolio is 1,000 USDT at this time, then the value of BTC and ETH would each be 500 USDT.

If your rebalancing mode is time-based, with the rebalancing time set at 24 hours, then when the rebalancing period reaches 24 hours, the Smart portfolio management robot will determine whether the current value ratio of each of your assets is consistent with your initial ratio. If your BTC assets appreciate within 24 hours, the position value ratio becomes 52%, i.e., 520 USDT; and if the ETH price falls, its position ratio becomes 48%, i.e., 480 USDT, then BTC is 40 USDT more than ETH. At this point, the Smart rebalancing strategy would implement a sell-high, buy-low strategy: it would sell BTC and buy ETH to make the portfolio allocation return to the initially set 1:1 value ratio. That is, it would take the extra 40 USDT from BTC and give 20 USDT to ETH, so that the final values of BTC and ETH each become 500 USDT, with no loss incurred.

If your rebalancing mode is threshold-based, such as setting the rebalancing threshold at 3%, this means that when the asset allocation ratio of the portfolio changes by 3%, the position will be automatically adjusted. So when the proportion of BTC assets rises from 50% to 53% at any given time or falls to 47%, then the Smart rebalancing strategy would automatically implement a sell-high, buy-low strategy.

Rebalancing Based on Time Period

Smart Rebalancing Process: Initial Ratio Set > Position Changes Within Set Time Period > Position After Rebalancing Upon Reaching Time Period > Position Changes Within Set Time Period After Rebalancing > Position After Next Rebalancing Upon Reaching Time Period

Threshold-Based Rebalancing

Smart rebalancing process: Set initial ratio > Position reaches the set threshold (let’s assume it’s 3%) > Position is automatically adjusted to initial set ratio > Position reaches the set threshold (again, let’s assume it’s 3%) > Position is automatically adjusted back to the initial set ratio.

8. Conclusion

In summary, Smart Rebalancing, as a classic strategy used in the traditional investment industry for decades, still holds irreplaceable superiority in today’s cryptocurrency investment market. As a low-risk strategy, it is less affected by price fluctuations, maximizing gains while minimizing losses. Users can use Smart rebalancing to keep the proportion of their digital assets fluctuating within a certain range, effectively avoiding large swings in earnings due to market conditions. It is an excellent choice for conservative, rational traders or those who don’t have the time to plan their digital assets and assess market trends.

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