Index Rebalancing

Definition ∞ Index rebalancing is the periodic adjustment of the components and their weightings within a financial index. This process ensures that the index accurately reflects its stated methodology, such as market capitalization or specific sector exposure. Rebalancing involves selling assets that have grown disproportionately and buying those that have become underweighted, or adding and removing assets based on predefined criteria. It maintains the index’s integrity and prevents it from drifting from its investment objective.
Context ∞ In crypto news, index rebalancing is relevant for digital asset indices and crypto exchange-traded products (ETPs) that track a basket of cryptocurrencies. News often reports on scheduled rebalances, which can cause temporary price volatility in the underlying assets as portfolio managers adjust their holdings. The discussion frequently involves the criteria used for asset inclusion and exclusion, and the impact of these adjustments on market liquidity and sentiment.