After looking at hundreds of fund teams over five years, he found that doing four points well is enough to succeed in trading.
The following text is compiled from my conversation with @ma_s_on_, who is a FOF investor with years of family office experience. This is the 21st issue of the #Dialogue with 100 Traders, which will be updated continuously, welcome to follow.
Mason's career began during the golden age of mobile internet, and he spent the last five or six years doing asset allocation in a family office with a technology background.
Mason's interest in the crypto field originated from the bull market frenzy in 2020. That year, they invested a small amount of money in several VC projects related to Digital Assets, which performed very well and yielded impressive returns.
It was also during this time that Mason connected with @SevenXVentures.
Mason's background gives him a unique market perspective, allowing him the opportunity to gain insights into the market landscape from a top-down approach, clearly seeing how different people participate in the market, which methods can earn money, and how money-making strategies shift over time.
What common traits do good traders have?
When choosing funds and GPs, Mason mainly focuses on three core factors: performance, team, and strategy.
First, let's talk about performance. The performance of the fund must have reliable data support. However, in the secondary market of the crypto field, information often lacks transparency, so the authenticity, sustainability of performance, and attribution analysis of past returns are very important.
Everyone says past performance does not guarantee future results, but which past performances can represent the future and which cannot is the key to evaluate at the performance level.
Now let's talk about the team. This includes team background, reliability, and communication situation, etc. This can be divided into three points:
First, integrity is a Red Flag. If trading for oneself, one must consistently adhere to discipline, resist temptation, and be honest with oneself; if managing assets, one must be honest with clients, and client service must also be prioritized.
Second, you must be hands-on. Many friends who make money tend to hire people to do the work and spend more time and energy on managing the business, which is not good. From the perspective of team size, those particularly good trading teams, whether proprietary or asset management, have core trading staff of no more than five, very streamlined, and the leader must be hands-on.
Third, one must have a global perspective and continuously evolve. When structural changes occur, founders must have the courage to make changes and execute them firmly. This determines the team's risk resistance capability and development potential.
Finally, strategies must align with current market demands and industry development trends.
Mason mentioned that the gap between the overall secondary market in the crypto field and the traditional secondary market is quite large, with a long way to go in terms of middle and back office setup, customer system maintenance, strategy complexity, compliance, etc. But from another angle, this also presents a huge opportunity.
How do good traders continue to improve?
The first is to maintain communication with the market; there must be an influx of external information. But while maintaining communication, one must also have discipline, like a weak stream that only takes one scoop, and cannot be led astray by others; this is very important.
Traders who perform well and have good results are very disciplined; no matter how well others speak, they do not believe it and focus only on their own fields.
The second is to have a higher-dimensional perspective. Looking from a bird's-eye view at the positions of different people, understanding what they are thinking, will ultimately reveal many previously puzzling issues.
In traditional investment, it is often said that many Chinese investors should look at the world less from a Chinese perspective and more from a global perspective when viewing China.
Today, the same applies in the crypto field: we should use the world perspective to look at the crypto field more and the crypto perspective less. This includes using the world perspective more to view Asia rather than viewing the world from an Asian perspective.
There is another set of keywords: Street Smart. This is a quality that many traders possess.
Traders may be the people closest to the essence of things among all professions in the world. They face the most frontline transactions and the most genuine value judgments every year. In their eyes, long-term things may not count, and buy and sell orders are the most important.
There is a type of strategy that can create terrifying excess returns, often relying on traders utilizing their street smarts. These people often have no financial or computer background, they just find patterns and work hard on them.
The fourth is to learn from good people, because today many are confused, and many directions are not working well. Therefore, to truly break the deadlock, it is necessary to find higher-dimensional people to guide.
How do institutions allocate crypto assets?
The allocation of cryptocurrency assets by family offices varies significantly from person to person, depending on the nature and preferences of the funds.
For Mason personally, he prefers to focus on the secondary market.
Regarding the classification of the secondary market in Crypto, Mason believes there are four categories:
The first category is Mining and holding coins, which means going mining or buying coins and not moving them for a very long time.
The second category is more technical trading, whether it's chart analysis or extreme Quant analysis.
The third category is more subjective and 'value'-oriented trading, some focus on fundamentals, but these 'fundamentals' may differ from stock fundamentals; in short, there are some subjective indicators to consider.
The fourth category is DeFi, which is singled out because it leans more towards the logic of a 'product manager.' In DeFi, the final earnings you can find are from which part of the product you earned, and it is more about understanding the game rules within each part.
Trading coins is not the only solution.
The industry is always changing, and the participants at each stage are different, so investment strategies do not have fixed formulas.
So what strategies perform better in this cycle? Mason summarized three categories:
The first is some strategies for enhancing currency-based assets, which can be divided into two categories:
1) TVL games, staking, and then claiming airdrops, which belong to risk-free arbitrage, very comfortable.
2) Quant.
Crypto Quant is the asset class that Mason likes most in the crypto field.
First, liquidity is very good, equivalent to T+0, you can invest today and withdraw today, or trade by yourself, at worst closing the position without trading.
Secondly, the scale capacity can be very large; for example, it is common for a single strategy to run several hundred million USD.
Finally, expected returns can be high or low and controllable, and risk control is relatively easy to implement, such as setting a forced liquidation line, liquidating everything when the overall drop reaches 15%.
In the past few years, the most popular strategy in Crypto Quant has been funding rate arbitrage. In 2020 and 2021, it could achieve an annualized three times return without drawdown, which is very impressive.
Of course, everyone knows this cannot last long-term. Now the returns of this strategy are also declining, but even if they are declining, the returns are still very good because there are no drawdowns, somewhat like cash management.
The second is to buy BTC at a discount or mine it. For example, when GBTC had this discount before, if you bought it, this discount could allow you to outperform BTC.
The third is some strategies that can outperform BTC in stages, such as CTA. Many traders like to do CTA for trend following, which can outperform BTC in the short term, but its weakness is that it has limited scale and capacity.
Mason also recommended some books.
The first is the principle of professional speculation, which systematically discusses the entire trading system.
The second type of book discusses the history of central banks, monetary policy, and banking studies, explaining what central banks do, why they do it, and the benefits and drawbacks behind each action.
You can start by looking at 'The Alchemist', which discusses what several well-known central bank governors did at critical moments in history.
The third category is books about human nature, such as the Chinese Ming and Qing novels, and the short stories of French authors Maupassant and Flaubert.
Often, you will find that while the real operation of this world does involve technical aspects, it is actually more broadly driven by human nature. These novels can help everyone better understand human nature, avoid having too many illusions about it, and handle many complex interests in daily life better.
Thanks again to @ma_s_on_ for participating in the dialogue with traders. Previous Space audio sessions will be updated on Xiaoyuzhou, the dialogue with traders.
