Short answer: Not too concerned about tax implications (though it will be some headache when filing).
Rebalancing will of course incur short term capital gains vs. a HODL strategy where you hold for at least 1 year. Short term capital gains are taxed as ordinary income.
Three scenarios (using 2018 as an example):
- Crypto portfolio gains value in 2018 - You will incur taxes on most of your cumulative gains (except for amounts you didn’t sell by the end of the year).
- Crypto portfolio is flat in 2018 - No taxes incurred from rebalancing (individual gains and losses are offset)
- Crypto portfolio loses value in 2018 - You report the losses and apply against any other capital gain you have (or carry forward the loss to next year)
For a HODL strategy, if you bought today and held for over 1 year, your cryptos are taxes at long term capital gains (15% for most people).
I believe 2018 will continue the volatile swings we’ve seen in the crypto markets, so the rebalancing strategy (i.e. sell high/buy low) that incurs short term capital gains will likely outperform a HODL strategy in which you don’t sell any of your cryptos for over a year.
Now… from a headache standpoint in doing taxes… the number of transactions to report from rebalancing strategy could be large. I’m planning to use https://cointracking.info/ so hopefully it does most of the work for me.