Allocation drift occurs when portfolio percentages shift from target allocations due to different asset performance, causing intended diversification and risk profiles to change without action. If Bitcoin outperforms altcoins significantly, it can grow from 50% to 70% of your crypto portfolio, concentrating risk beyond your intended exposure. Recognizing allocation drift triggers rebalancing decisions to restore target percentages and maintain consistent risk management.
Example:
Your $100,000 portfolio starts with 40% Bitcoin ($40k), 30% Ethereum ($30k), 20% altcoins ($20k), 10% stablecoins ($10k). During a six-month bull run, Bitcoin gains 100%, Ethereum gains 200%, and altcoins gain 50%. Your portfolio is now worth $170,000: Bitcoin $80k (47%), Ethereum $90k (53%), altcoins $30k (18%), stablecoins $10k (6%). Allocation drift has made Ethereum your largest position at 53% when your target was 30%, concentrating over half your risk in one asset. This drift signals rebalancing time. You would sell approximately $39,000 in Ethereum to bring it back to your 30% target ($51,000), redistributing those profits into underweight positions and locking in gains while they exist.