Dialogue trader Mason: After looking at nearly a hundred cryptocurrency trading funds in the industry, I found that good traders have the following characteristics.

Five years of observing hundreds of fund teams, he found 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, continuously updated, 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 tech-focused family office.

Mason's interest in the crypto space originated from the bull market frenzy in 2020. That year, they invested a small portion of their funds into 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 profit-making 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, 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. In terms of team size, particularly successful trading teams, whether self-directed or asset management, typically have core trading personnel of five or fewer, keeping it 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 crypto secondary market and traditional secondary markets, with much work to be done in areas such as back-end infrastructure, client system maintenance, strategy complexity, and compliance. However, viewed 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. However, while maintaining communication, one must have self-discipline, taking only a small portion from the vast river, and not be led astray by others—this 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 down from a bird's-eye view at different people's positions and understanding 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 use a global perspective to view China rather than a Chinese perspective to view the world.

Today, the same applies in the crypto space; we should use a global perspective to view the crypto field rather than a crypto perspective to view the world. This includes using a global perspective to view Asia rather than just an Asian 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; buy orders and sell orders are what matter most.

"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 feeling lost today, 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 technical analysis Quant.

The third category is more 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 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 more about understanding the rules of the game within each segment.

Trading coins is not the only solution.

The industry is constantly changing, and the participants at each stage are different, so investment strategies do not have a fixed form.

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

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; this is a form of risk-free arbitrage, 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 management is relatively easy to implement, such as setting a forced liquidation line, closing all positions if there is an overall drop of 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 remarkable.

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 are no drawdowns, 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 outperform BTC in certain phases, such as CTA. Many traders like to do CTA and 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, explaining what central banks do, why they do it, and the benefits and drawbacks of 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 Ming and Qing novels, and short stories by French authors Maupassant and Flaubert.

Often, one will find that while the real operation of the world certainly 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 interest relationships in daily life more effectively.