Conversation with trader Mason: What are the characteristics of a good trader after reviewing nearly a hundred Cryptocurrency Speculation funds in the industry?

Question

After studying hundreds of fund teams over the past five years, he found that doing four things well can lead to successful trading.

The following text is organized from the conversation between me and @ma_s_on_, who is an FOF investor with many years of experience in family office management. This is the 21st issue of #Dialogue100Traders, continuously updated, follow welcome.👇

Mason's career began in the golden age of the mobile internet and has been involved in asset allocation in a technology background at home for the past five or six years.

Mason's interest in the encryption field originated from the bull run frenzy of 2020. That year, they invested a small amount of money in several VCs related to Digital Assets, and the performance was very good, with exaggerated returns.

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

Mason's background gives him a unique market perspective, allowing him to gain a top-down insight into the overall market, to see clearly how different people participate in the market in different ways, which ways can make money, and how money-making strategies shift direction with time.

What do good traders have in common?

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

Let's talk about performance. The fund's performance must have reliable data support. However, in the Secondary Market of encryption, information often lacks transparency, so the authenticity and sustainability of performance, as well as attribution analysis of past returns, are 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."

Speaking of the team. Including team background, reliability level, and communication situation, etc. Here are three points:

First, integrity is a Red Flag. If you are trading as a self-operated business, you must always adhere to discipline, resist temptation, and be honest with yourself; if you are engaged in asset management, you must be honest with your clients and provide customer service as well.

Second, you must be hands-on. Many frens make money and then hire people to do the work, spending more time and energy on managing the business, which is not good. In terms of team size, the best trading teams, whether self-operated or asset management, have no more than five core traders, very streamlined, and the leader must be hands-on.

Third, we need to have a global perspective and continue to evolve. When structural changes occur, founders must have the courage to make changes and execute them firmly. This determines the team's ability to withstand risks and its development potential.

Finally, it is strategy. It needs to meet current market demand and industry development trends.

Mason mentioned that there is a big gap between the secondary level of encryption in the overall field and the traditional secondary level, with a long way to go in terms of back-end construction, customer system maintenance, strategy complexity, Compliance, etc. But looking at it from a different perspective, this is also a huge opportunity.

How do good traders continue to improve?

The first thing is to keep in touch with the market and have external information flow in. But while maintaining communication, you must have your own determination. Out of the three thousand rivers, only take one ladle. You must not be led by others. This is very important.

"Traders who perform well and have good performance are very focused and disciplined. They don't believe in what others say, only focusing on their own field."

The second is to have a higher-dimensional perspective. Looking at different people's positions from an overhead perspective and what they are thinking, in the end, it will be discovered that it can explain many previously incomprehensible problems.

In traditional investments, it is often said that many investors in China should use the perspective of the world less and use the perspective of the world more to view China.

Today, the same applies to the field of encryption. We should view the world less from the perspective of encryption and more from the perspective of the world. This includes looking at the world less from an Asian perspective and more from a global perspective.

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

Traders may be the closest to the essence of things among professionals in various industries around the world. They face frontline transactions and real value judgments every year. In their eyes, long-term things may not count, but buying and selling orders are the most important.

"There is a type of strategy that can generate very scary excess returns, often it is the traders who use their street smart. These people often do not have a financial background or a computer background, they just find patterns and go all out on them."

The fourth is to learn from good people, because today everyone is more confused, and many directions are not very viable. So really breaking through requires finding some people of a higher dimension to guide.

How do institutions allocate encryption assets?

The allocation of Cryptocurrency assets for home office actually varies greatly from person to person, depending on the nature of the funds and preferences.

Personally, Mason would prefer to put it at the secondary level.

For the classification of Crypto Level 2, Mason believes there are four types:

The first type is Mining and hodling, which means going mining or buying coins and not moving them for a very long time.
The second type is more technically oriented trading, whether it is looking at the trend or mastering the technology to the extreme as a Quant.
The third type is a bit subjective and "valuable" type of speculation, some are based on fundamentals, but these "fundamentals" may be different from the fundamentals of stocks, in short, there are some subjective indicators to consider.
The fourth category is Decentralized Finance, which is singled out because it is actually more inclined towards the logic of 'product manager'. In Decentralized Finance, the ultimate profit you earn depends on which stage of the product you can find it in, and it's more about understanding the rules of each game inside.

Cryptocurrency Speculation is not the only solution

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

So what are some of the better-performing strategies in this cycle? Mason has summarized three types:

The first is some strategies for enhancing the coin-based, which are divided into two categories:

TVL game, stake, and then claim airdrop. This belongs to risk-free arbitrage, very comfortable.
Quant.

Crypto Quant is Mason's favorite asset class in the encryption field.

First of all, Liquidity is very good, equivalent to T+0, you can withdraw today after today's investment, or trade by yourself, worst case scenario, do not trade and Close Position.

Secondly, the scale capacity can be very large, for example, it is very common for a single strategy to run several billion US dollars.

Finally, the expected returns can be high or low and can be controlled, and risk management is relatively easy, for example, setting a forced Close Position line, overall fall 15% all Close Position.

"In the past few years, funding rateArbitrage has been the most popular in Crypto Quant. It can achieve an annualized three times without drawdown in 2020 and 2021, which is very exaggerated."

Of course, everyone also knows that this cannot continue for a long time. The returns of this strategy are also decreasing now, but even if the returns decrease, they are still very good because there is no drawdown, which is somewhat similar to cash management.

The second is to buy BTC or Mining 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 trend following, which can outperform BTC in the short term, but its weakness is that it is limited in scale and capacity.

Mason also recommended some books.

The first one is "The Professional Speculator's Rules of the Game", which systematically explains the entire trading system.

The second is a book about the history of the Central Bank, monetary policy, and banking, knowing what the central bank is doing, why it is doing so, and the benefits and drawbacks behind everything it does.

You can start with "The Alchemist", which tells the story of what three famous Central Bank governors did at critical moments in history.

The third is a book about human nature, such as Chinese Ming and Qing novels, and the short stories of Maupassant and Flaubert in France.

Many times, we will find that the real operation of this world is not only about technology, but more broadly driven by human nature. These novels can help us better understand human nature, not to have too many illusions about human nature, and can better handle many complex daily interests.

Thanks again to @ma_s_on_ for participating in the dialogue with traders, the previous Space audio will be updated in the small universe, dialogue 🔍 with traders.