Rebalancing

Rebalancing — periodically selling assets that have grown to restore a target allocation — is standard practice in traditional portfolio management. If Bitcoin rises from 5% to 20% of a portfolio, rebalancing means selling some Bitcoin to bring it back to 5%.

In traditional assets, this makes sense. It forces a degree of sell-high, buy-low discipline. It manages concentration risk. It’s rational.

With Bitcoin, the logic gets complicated. And the complication is interesting.

If someone holds Bitcoin because they believe it is in the early stages of becoming a global reserve asset — a multi-decade thesis — then rebalancing means repeatedly selling a position in what they consider the best long-term asset to buy more of assets they consider inferior. The mechanical discipline of rebalancing works against the core thesis.

Contrast this with someone who holds Bitcoin as one component of a diversified portfolio without a strong directional view on its long-term trajectory. For them, rebalancing makes more straightforward sense. The position is an allocation, not a conviction.

The honest answer is that rebalancing decisions are downstream of thesis decisions. The question isn’t “should I rebalance” but “what do I believe about Bitcoin’s long-term trajectory, and does rebalancing align with or contradict that belief?”

Most long-term Bitcoin holders describe not rebalancing in the traditional sense — but rather adjusting position size at cycle extremes, adding during bear markets and taking some profit during confirmed bull market peaks.

That’s not rebalancing. It’s cycle-aware position management. A different thing.

Tomorrow: the cost of waiting — what sitting in cash actually costs.

— The Daily Bit