After looking at hundreds of fund teams over the past five years, he found that success in trading can be achieved by doing four things well.

The following text is a summary of my conversation with @ma_s_on_, who is an FOF investor with many years of family office experience. This is the 21st episode of #Dialogue100Traders, which will be updated continuously, so please follow us. 👇

Mason's career began in the golden age of mobile Internet. For the past five or six years, he has been doing asset allocation in 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 VCs related to Digital Asset, which performed very well and had exaggerated returns.

It was also at that time that Mason met @SevenXVentures.

Mason's background gives him a unique market perspective, giving him the opportunity to see the entire market from top to bottom. He can clearly see how different people participate in the market, which methods can make money, and in which direction the money-making strategies shift over time.

What do all good traders have in common?

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

Let’s talk about performance first. The performance of a fund must be supported by reliable data. However, in the secondary market of the crypto field, information often lacks transparency, so the authenticity and sustainability of performance and attribution analysis of past returns are very important.

"Everyone will say that past performance does not represent the future, but which past performance 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 team background, reliability, communication, etc. This can be divided into three points:

First, integrity is a red flag. If you are doing proprietary trading, you must always adhere to discipline, resist temptation, and be honest with yourself; if you are doing asset management, you must be honest with your clients and provide good customer service.

Second, you must do it yourself. Many friends will hire some people to do the work after they make money, and spend more time and energy on company management. This is not good. From the perspective of team size, those particularly good trading teams, whether they are proprietary or asset management, have less than five core trading personnel, which is very streamlined, and the top leader must do it himself.

Third, you need to have a holistic view and continue to evolve. When structural changes occur, the founder must have the courage to make changes and firmly implement them. This determines the team's ability to resist risks and development potential.

Finally, the strategy needs to be in line with current market demand and industry development trends.

Mason mentioned that the gap between the secondary and traditional secondary in the overall encryption field is quite large, and there is still a long way to go in terms of mid-backend construction, customer system maintenance, strategy complexity, compliance, etc. But from another perspective, this is also a huge opportunity.

How do good traders continue to improve?

The first is to maintain communication with the market, and there must be external information flowing in. But while maintaining communication, you must have determination, take only one scoop from the vast sea, and not be led by others. This is very important.

“Traders with good performance and good results are very determined. They don’t believe what others say, no matter how good it is. They only focus on their own field.”

The second is to have a higher-dimensional perspective. Look at the positions of different people from a bird's-eye view and see what they are thinking. In the end, you will find that you can explain many problems that you have never been able to figure out before.

“In traditional investment, people often say that many Chinese investors should view the world less from a Chinese perspective and view China more from the world’s perspective.

This sentence also applies to the crypto field today. We should look at the world less from the perspective of the crypto field and look at the crypto field more from the perspective of the world. This includes looking at the world less from the perspective of Asia and looking at Asia more from the perspective of the world. "

There is another set of keywords: Street Smart. This is a quality that many traders have.

Traders may be the people who are closest to the essence of things in all walks of life in the world. They face the most frontline buying and selling and the most real value judgments every year. In their eyes, long-term things may not count, and buying and selling orders are the most important.

"There is a type of strategy that can create very scary excess returns, which is often the result of traders using their street smarts. These people often have no financial or computer background, they just look for patterns and work hard on them."

The fourth is to learn from good people, because everyone is confused today, and many directions are not feasible. So if you really want to break through, you need to find some people with higher dimensions to guide you.

How do institutions allocate crypto assets?

The allocation of cryptocurrency assets by family offices actually varies greatly from person to person, depending on the attributes and preferences of the funds.

Mason personally would prefer to put him in the secondary.

Mason believes that there are four categories of Crypto secondary classification:

  • The first category is mining and hoarding coins, which means mining or buying coins and not moving them for a very long time.
  • The second type is more technical trading, whether it is line-watching or Quant who has achieved the ultimate in technical aspects.
  • The third category is the more subjective and "value-oriented" cryptocurrency speculation. Some of them look at fundamentals, but these "fundamentals" may be different from the fundamentals of stocks. In short, there are some subjective indicators to look at.
  • The fourth category is DeFi. The reason why it is singled out is that it is actually more biased towards the logic of "product managers". In DeFi, you can find out which link of the product you earned the profit in the end, and it is more important to understand the rules of each game.

Cryptocurrency speculation is not the only solution

The industry is constantly changing, and the participants at each stage are different, so there is no fixed investment strategy.

So what strategies performed better in this cycle? Mason summarized three categories:

The first is some strategies for currency standard enhancement, which can be divided into two categories:

1) TVL game, pledge, and then receive airdrops. This is a cost-free arbitrage and is very comfortable.

2) Quant.

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

First of all, the liquidity is very good, which is equivalent to T+0. You can withdraw the money you invested today, or trade it yourself. At worst, you can just close the position and not trade.

Secondly, the scale capacity can be very large. For example, it is common for a single strategy to run for hundreds of millions of US dollars.

Finally, the expected return can be high or low and can be controlled. Risk control is also relatively easy to do. For example, you can set a forced liquidation line and liquidate all positions if the overall decline is 15%.

“In the past few years, the most popular thing in Crypto Quant is funding rate arbitrage. In 2020 and 2021, it was possible to achieve an annualized three-fold return with no drawdown, which is very exaggerated.

Of course, everyone knows that this cannot be sustained in the long term, and the returns of this strategy are also declining, but even if they decline, the returns are still very good because there is no drawdown, which is a bit like cash management. "

The second is to buy BTC or mine at a discount. For example, when GBTC had this discount before, if you bought it, this discount could also 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 to follow the trend, 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 one is "Principles of Professional Speculation", which systematically explains the entire trading system.

The second is books about the history of central banks, monetary policy, and banking, so that you can understand what the central bank is doing, why it is doing it, and the pros and cons behind everything it does.

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

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

Often, we find that the real operation of this world is certainly technical, but in fact, it is human nature that drives it more broadly. These novels can help people better understand human nature, not have too many illusions about human nature, and better handle many complex interests in daily life.

Thanks again to @ma_s_on_ for participating in the dialogue with traders. Previous Space audios will be updated in Xiaoyuzhou one after another. 🔍Dialogue with traders.