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 #ConversationsWith100Traders, which will be updated continuously, feel free 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 family office with a technology background.

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 projects 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 into the overall market from a top-down approach. 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 fund's performance 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, among other aspects. 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 also 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. From the perspective of team size, particularly good trading teams, whether self-directed or asset management, typically have core trading personnel of five or fewer, keeping it very lean, 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 resistance and development potential.

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

Mason mentioned that the gap between the overall crypto secondary market and traditional secondary markets is quite large, 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 is to maintain communication with the market; there must be an influx of external information. However, while maintaining communication, one must also have self-discipline, only taking a small portion from the vast sea of information and not being led astray by others, which is very important.

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

The second is to have a higher-dimensional perspective. By looking from an overarching viewpoint at different people's positions and what they are thinking, one will discover explanations for many previously puzzling questions.

"In traditional investing, 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 to the crypto space; we should look at the world less from a crypto perspective and more from a global perspective when viewing the crypto space. This includes looking at Asia less from an Asian perspective and more from a global perspective."

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 in various industries; they face the most frontline buying and selling and the most genuine value judgments every year. In their eyes, long-term factors may not count, and buy and sell orders are the most important.

"There is a type of strategy that can create extremely scary excess returns, often driven by traders using their street smarts. These individuals often lack a financial or computer background; they simply find patterns and work hard on them."

The fourth is to learn from good people, as many are feeling lost today, and many directions are not very viable. Therefore, to break the deadlock, 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 buying coins and holding them for a very long time.

The second category is more technical trading, whether through chart analysis or extreme technical analysis Quant.

The third category is more subjective and "value"-oriented trading, which may involve looking 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 leans more towards a "product manager" logic. In DeFi, the profits you earn can be traced back to which part of the product they came from, and it is essential to understand the rules of the game within each component.

Trading coins is not the only solution.

The industry is constantly changing, and participants at each stage are different, 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 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, and risk control is relatively easy to implement, such as setting a forced liquidation line, closing all 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 impressive.

Of course, everyone knows this cannot continue long-term; the returns of this strategy are also declining, but even with the decline, the returns are still very good because there is no drawdown, somewhat like cash management."

The second is to buy BTC at a discount or through mining. For example, when GBTC had a discount in the past, buying it could allow you to outperform BTC.

The third is some strategies that can periodically outperform BTC, such as CTA. Many traders like to do CTA and follow trends, 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 are doing, 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 books about human nature, such as Chinese novels from the Ming and Qing dynasties, and short stories by French authors Maupassant and Flaubert.

Often, one will find 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 too many illusions about it, and manage many complex interest relationships in daily life more effectively.

Thanks again to @mason_ for participating in the conversation with traders; past Space audio will be updated on Xiaoyuzhou, 🔍 Conversations with Traders.

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