Bitcoin ETFs attract a new investor who defies the 'HODL' culture and adjusts their portfolio as bitcoin surges.

Crypto's volatility prompts investors to "HODL" and endure the wild ride.

As ETF adoption grows, traditional investors who regularly rebalance their portfolios may reduce their long-prized practice.

As exchange traded funds (ETFs) tracking bitcoin's price have been launched this year, the institutionalization of cryptocurrency is expected to continue, especially with wirehouses, brokerages, and advisors providing client access to these ETFs.

"According to Donald Marron, director of economic policy initiatives at Urban Institute, there are many individuals in the community who are simply holding onto their bitcoin without any intention of selling. If these individuals allocate just 1% of their bitcoin today and never touch it, they could potentially see significant wealth gains if the price of bitcoin continues to rise."

"Rebalancing is necessary for risk management, but it also means that sellers will be involved in the process."

During bull markets, long-term holders typically sell bitcoin after accumulating it during the bear market, as predicted by Julio Moreno, head of research at CryptoQuant.

Bitwise Asset Management's chief investment officer, Matt Hougan, advised investors to treat bitcoin as any other asset and include it in their portfolio, along with the rebalancing process, considering bitcoin's traditional four-year cycle of three good years followed by a down year.

"Bitcoin experiences boom and bust cycles," he stated at the Vision conference, a crypto investing forum for advisors hosted by the Digital Assets Council of Financial Professionals. "Incorporating rebalancing into your portfolio significantly increases the impact on 'sharpes' and other performance measures."

The Sharpe ratio enables investors to evaluate the profitability of their investments in relation to the level of risk they assume.

Dampening bitcoin's volatility may help rebalance investors' concerns about the asset, according to Michael Allegue, an investment officer at MassMutual.

Institutional capital coming in may lead to dampening of volatility, as many firms, including us, will likely rebalance accounts, reducing the buy-and-hold approach.