After reviewing hundreds of fund teams over five years, he found that focusing on four points can lead to successful trading.

The following text is organized from my discussion with @ma_s_on_; he is a FOF investor with many years of family office experience. This is the 21st issue of #Dialogue with 100 Traders, continuously updated, welcome to follow.

Mason's career began during the golden age of mobile internet, and he has been engaged in asset allocation at a tech-based family office for the past five to six years.

Mason's interest in the crypto field originated from the bull market frenzy in 2020. That year, they invested a small portion of money in several VC projects related to Digital Assets, which performed very well with astonishing returns.

It was also during this time that Mason connected with @SevenXVentures.

Mason's background gives him a unique market perspective, allowing him to gain insights into the overall market from a top-down approach, clearly seeing how different people participate in the market, what methods can be profitable, and how profitable strategies shift over time.

What common traits do good traders have?

When selecting funds and GPs, Mason mainly focuses on three core factors: performance, team, and strategy.

First, let's talk about performance. The performance of funds must be supported by reliable data. However, in the secondary market of the crypto field, information often lacks transparency, so the authenticity, sustainability, and attribution analysis of past returns are crucial.

"Everyone says that past performance does not guarantee future results, but which past performances can represent the future and which cannot, this is the key to consider at the performance level."

Let's talk about the team. This includes the team's background, reliability, and communication, etc. Here it can be divided into three points:

First, integrity is a Red Flag. If trading proprietary accounts, one must consistently adhere to discipline, resist temptation, and be honest with oneself; if managing assets, one must be honest with clients, and customer service must also be top-notch.

Second, one must be hands-on. Many friends earn money and then hire people to do the work, spending more time and energy on company management, which is not ideal. From the perspective of team size, those particularly good trading teams, whether proprietary trading or asset management, typically have core traders limited to 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, there are strategies. They need to align with current market demands and industry development trends.

Mason mentioned that there is a significant gap between the overall crypto secondary market and traditional secondary markets, with a long way to go in areas such as back-end infrastructure, client system maintenance, strategy complexity, and compliance. But looking at it 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 have composure, only taking a small amount from the vast river, and not being led astray by others; this is very important.

"Traders who perform well and have good results are very composed; no matter how good others say it is, they do not believe it and only focus on their own field."

The second is to have a higher-dimensional perspective. From an overview perspective, looking at where different people are positioned and what they are thinking will ultimately reveal explanations for many previously perplexing issues.

"In traditional investing, people often say that many Chinese investors need to view the world less from a Chinese perspective and more from a global perspective when looking at China.

This saying also applies to the crypto field today: we should view the world less from the crypto perspective and more from a global perspective when looking at the crypto field. This includes using less of an Asian perspective and more of a global perspective when looking at Asia.

Another set of keywords: Street Smart. This is a quality that many traders possess.

Traders may be the professionals closest to the essence of things among all occupations; they face the most frontline buying and selling and the most genuine value judgments each year. In their eyes, long-term factors may not count; buy orders and sell orders are what matter most.

"There are strategies that can generate extremely terrifying excess returns, often due to traders utilizing their street smarts. These individuals often lack a financial or computer science background; they just find patterns and work hard on them."

The fourth is to learn from good people, because today many are quite confused, and many paths are not very viable. To truly break the deadlock, one needs to find individuals with a higher dimension to guide them.

How do institutions allocate crypto assets?

The allocation of cryptocurrency assets by family offices varies greatly depending on the nature and preferences of the funds.

For Mason personally, he prefers to invest in the secondary market.

Regarding the classification of crypto secondary markets, Mason believes there are four categories:

The first category is Mining and long-term holding strategies, which involve mining or holding coins without any movement for a very long time.

The second category is trading that is more technically oriented, whether it’s chart analysis or technical trading taken to the extreme in Quant.

The third category is somewhat subjective and 'value'-oriented trading, some of which look at 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 is more aligned with the logic of a 'product manager.' In DeFi, the profits you earn can be traced back to which part of the product you earned it from, and it’s more about understanding the game rules within each.

Trading coins is not the only solution.

The industry is always changing, and the participants at each stage are different, so investment strategies are not fixed.

So what are the strategies that performed well during this cycle? Mason summarized three categories:

The first is some strategies that enhance coin-based assets, which can be further divided into two categories:

1) TVL games, staking, and then earning 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 yourself, at worst, you can just close the position and stop trading.

Additionally, the scale capacity can be very large; for example, it's common for a single strategy to manage several hundred million dollars.

Finally, expected returns can be high or low and can be controlled, with risk management being relatively easy, such as setting a forced liquidation line, liquidating everything if there is a 15% drop.

"In the past few years, the most popular strategy in Crypto Quant has been funding rate arbitrage. In 2020 and 2021, it was possible to achieve an annualized return of three times with no drawdown, which is very exaggerated.

Of course, everyone knows this cannot sustain long-term; now the returns from this strategy are also declining, but even if they decline, the returns are still very good because there are no drawdowns, somewhat like cash management.

The second is buying BTC at a discount or mining. For instance, when GBTC had a discount in the past, buying it could outperform BTC.

The third is some strategies that can periodically outperform BTC, such as CTA. Many traders like to do CTA trend-following, which can outperform BTC in the short term, but its drawback is that it has limited scale and capacity.

Mason also recommended some books.

The first is the principle of professional speculation, systematically discussing the entire trading system.

The second is books on the history of central banks, monetary policy, and banking, understanding what central banks are doing, why they do it, and the advantages and disadvantages behind each action.

You can start with (The Alchemist), which discusses what three historically famous central bank governors did at crucial moments.

The third is books that discuss human nature, such as Chinese novels from the Ming and Qing dynasties, and short stories by French authors Maupassant and Flaubert.

Often, one finds that while the true operation of this world certainly has technical aspects, more broadly, it is still human nature that drives it. These novels can help everyone better understand human nature, not to hold too many illusions about it, and to manage many complex interests in daily life more effectively.

Thanks again to @ma_s_on_ for participating in the dialogue with traders; past Space audio sessions will be continuously updated on Xiaoyuzhou, 🔍 Dialogue with Traders.