Month: October 2021

Are Cryptocurrencies Suitable Options for Portfolio Rebalancing?

Portfolio rebalancing is a critical aspect of traditional investing; involving a review of the viability and risks posed by all assets held as investments. However, the younger generation of investors seem to throw caution to the wind as many are tempted to optimize their investments by buying large sums of cryptocurrencies like bitcoin.

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Many base their decisions on fintech apps that provide real time data about bitcoin movements and conditions, using the measuring tools, graphs and charts of the app in analyzing the current conditions in the cryptocurrency markets. Some others rely on signals that indicate buying and selling trends.

Are Cryptocurrencies Suitable Options for Portfolio Rebalancing?

Most financial advisors do not recommend investing on cryptocurrencies if for purposes of portfolio rebalancing.

Primarily because cryptocurrencies like BTCs are highly volatile and their conditions can change abruptly. Secondly, they are highly susceptible to price manipulations through the acts of buying and selling.

Albeit regarded as a secure asset in light of the check and balance provided by the blockchain technology that supports cryptocurrency transactions, the secrecy aspect and the lack of regulations are issues that can affect the soundness of investing on cryptocurrencies. Here’s how:

Supposing an unknown and unnamed group of people who owns huge sums of crypto money, decides to reduce or unload their digital money out of the crypto exchange markets. If there’s an equally large number of people who will buy the crypto money they unloaded, it is well and good because that will maintain the balance between supply and demand.

However, some fintech apps provide crypto trading signals that indicate buying trends to alert digital asset owners. While signals are not guaranteed as 100% accurate, early signs of a selling trend can trigger a spate of selling activities.

If the trend is not met with a commensurate demand for cryptomoney, such an occurrence will likely bring the crypto price index down. If the selling trend continues throughout the day and for a period of time, the crypto exchange market will have an abundant supply of crypto money.

Once the price index level reaches a desired low level, the unnamed group of people will set off the buying trend in order to increase the price of the digital asset. Inasmuch as they bought the digital currency at the current low price, they will once again wait for an opportune time in which to sell or unload their assets in order to profit from their crypto investment.

However, those who hold only meager sums of crypto money will keep on monitoring signals and price indexes, and will be on edge as they contemplate up to what point they should hold on to their digital asset.

That is why the team of financial experts at EInvestments who perform portfolio rebalancing in behalf of their client always takes into consideration the risk tolerance and time horizon of every individual who places their hard earned money in their platform.