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

The following text is organized from a conversation between myself and @mason_, who is a FOF investor with years of experience in family offices. This is the 21st issue of #Dialogue100Traders, which will be updated continuously, and you are welcome to follow.

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

Mason's interest in the crypto space originated from the bull market frenzy in 2020. That year, they invested a small amount of money in several VC funds related to Digital Assets, which performed exceptionally well, yielding impressive returns.

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

Mason's background gives him a unique market perspective, allowing him to gain insights from a top-down view of the market. He can clearly see how different participants engage with the market, which methods are profitable, and how profitable strategies shift over time.

What Common Traits Do Good Traders Share?

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

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

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

Next is the team. This includes the team's background, reliability, and communication. This can be further divided into three points:

First, integrity is a Red Flag. If trading is self-directed, 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 be prioritized.

Second, one must be hands-on. Many friends who make money tend to hire others to do the work, spending more time and energy on company management, which is not ideal. Looking at team size, particularly successful trading teams, whether self-directed or asset management, typically have core trading personnel of five or fewer, which is very streamlined, and the leader must be hands-on.

Third, there must be a global perspective and continuous evolution. When structural changes occur, founders must have the courage to make changes and execute them firmly. This determines the team's risk resilience and growth potential.

Finally, the strategy must align with current market demands and industry development trends.

Mason mentioned that there is a significant gap between the overall secondary market in crypto and traditional secondary markets, with much work to be done in areas such as back-end construction, client system maintenance, strategy complexity, and compliance. However, from another perspective, this also presents a huge opportunity.

How Do Good Traders Continue to Improve?

The first point is to maintain communication with the market and ensure a flow of external information. However, while keeping in touch, one must also have self-discipline, focusing on one’s own path and not being swayed by others, which is very important.

"Traders who perform well and have good results are very disciplined; no matter how convincing others are, they remain focused on their own field."

The second point is to have a higher-dimensional perspective. By looking down from a broader view, one can understand different people's positions and thoughts, ultimately explaining many previously puzzling issues.

"In traditional investing, it is often said that many Chinese investors should avoid viewing the world solely from a Chinese perspective and should instead adopt a global viewpoint to understand China better.

This statement applies equally to the crypto space today; we should use less of a crypto perspective to view the world and more of a global perspective to understand the crypto space. This includes using less of an Asian perspective to view the world and more of a global perspective to understand Asia."

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

Traders may be the professionals closest to the essence of things in various industries. They face the most direct buying and selling and the most genuine value judgments each year. In their eyes, long-term factors may not matter; buy and sell orders are what truly count.

"There are strategies capable of generating extremely high excess returns, often driven by traders' street smarts. These individuals often lack financial or computer backgrounds; they simply find patterns and work hard on them."

The fourth point is to learn from good people, as many are currently feeling lost, and many directions may not be viable. To break through, it is essential to seek guidance from individuals with a higher-dimensional perspective.

How Do Institutions Allocate Crypto Assets?

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

For Mason personally, he prefers to focus on the secondary market.

Regarding the classification of Crypto secondary markets, Mason identifies four categories:

• The first category is Mining and HODLing, which involves mining or holding coins for a very long time without movement.
• The second category is more technical trading, whether through chart analysis or extreme Quant strategies.
• The third category is more subjective and "value"-oriented trading, which may involve fundamental analysis, but these "fundamentals" may differ from those in stock markets; in short, there are subjective indicators to consider.
• The fourth category is DeFi, which is singled out because it leans more towards a "product manager" logic. In DeFi, the profits earned can be traced back to specific aspects of the product, requiring a clear understanding of the rules of each game involved.

Trading Coins Is Not the Only Solution

The industry is constantly changing, and participants at each stage differ, so investment strategies are not fixed.

So what strategies have performed well in this cycle? Mason summarized three types:

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

1) TVL games, staking, and then claiming airdrops, which belong to risk-free arbitrage and are very comfortable.

2) Quant.

Crypto Quant is Mason's favorite asset class in the crypto space.

First, liquidity is excellent, equivalent to T+0; you can invest today and withdraw today, or trade yourself, and if necessary, just close the position without trading.

Second, the scale capacity can be very large; for example, it is common for a single strategy to run several hundred million dollars.

Finally, expected returns can be high or low and controllable, with risk management being relatively easy, such as setting a forced liquidation line to close positions if 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 return of three times with no drawdown, which is quite extraordinary.

Of course, everyone knows this cannot be sustained long-term, and the returns of this strategy are now declining, but even with the decline, the returns remain very good because there is no drawdown, somewhat akin to cash management."

The second strategy is to buy BTC at a discount or mine it. For example, when GBTC had a discount, buying it allowed you to outperform BTC.

The third strategy involves some that can periodically outperform BTC, such as CTA. Many traders enjoy doing CTA trend-following, which can outperform BTC in the short term, but its weakness lies in limited scale and capacity.

Mason also recommends some books.

The first is "The Principles of Professional Speculation," which systematically discusses the entire trading system.

The second is a book about the history of central banks, monetary policy, and banking, which explains what central banks do, why they do it, and the pros and cons behind each action.

You can start with "The Alchemist," which discusses what three famous central bank governors did at critical moments in history.

The third is a book about 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 real operation of the world has technical aspects, it is more broadly driven by human nature. These novels can help everyone better understand human nature, avoid excessive illusions about it, and manage many complex relationships in daily life more effectively.

Thanks again to @mason_ for participating in the dialogue with traders. Previous Space audio sessions will be updated on Xiaoyuzhou, ? Dialogue with Traders.

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