Portfolio Construction for Digital Assets

Position sizing, correlation and rebalancing rules for a volatile asset class.

Start with the loss you can accept

Size positions from a maximum tolerable drawdown, not from a target return. Volatility of 60 to 80 percent annualised is normal in this asset class.

Correlation is unstable

Digital assets can behave as risk assets in a liquidity squeeze and as idiosyncratic assets in calm markets. Assume correlations converge toward one during stress.

Rebalance mechanically

Calendar or threshold rebalancing harvests volatility and prevents a single winner from silently becoming the entire portfolio.

Key takeaways

• Start with the loss you can accept: Size positions from a maximum tolerable drawdown, not from a target return.
• Correlation is unstable: Digital assets can behave as risk assets in a liquidity squeeze and as idiosyncratic assets in calm markets.
• Rebalance mechanically: Calendar or threshold rebalancing harvests volatility and prevents a single winner from silently becoming the entire portfolio.

Risk disclosure

This article is educational content published by Vaultero Capital and is not investment advice, a recommendation, or an offer to buy or sell any asset. Digital assets are highly volatile and you may lose some or all of the capital you commit. Projected or historical returns are not a reliable indicator of future performance. Consider your objectives, time horizon and tolerance for loss, and seek independent professional advice where appropriate. Full terms are set out in our risk disclosure.