Portfolio rebalancing in crypto is the systematic strategy of periodically adjusting your holdings back to target allocation percentages by selling overweight positions and buying underweight ones. This disciplined approach forces you to take profits from winners (selling high), reduce concentration risk, and buy undervalued assets (buying low). Rebalancing prevents any single cryptocurrency from dominating your portfolio and automates the "buy low, sell high" principle without emotional decision-making. Most professionals rebalance quarterly or when positions exceed targets by 10%+.
Example:
Your $100,000 portfolio starts with 40% Bitcoin ($40k), 30% Ethereum ($30k), 20% altcoins ($20k), 10% stablecoins ($10k). During the bull run, Ethereum triples while Bitcoin and alts gain 50%. Your new portfolio totals $190,000: BTC $60k (32%), ETH $90k (47%), Alts $30k (16%), Stablecoins $10k (5%). Ethereum has grown from 30% to 47%, rebalancing means selling $37,000 in ETH to bring it back to your 30% target ($57,000), redistributing those profits into underweight positions. This locks in Ethereum gains while maintaining diversified exposure.