Katalyzers Spotlight: Joshua Kang (Mozaik Capital)

Joshua Kang is an OG member of the Kaito Katalyzers community. This series highlights our top power-users, showcasing their diverse backgrounds and how they utilize Kaito.

Note that this interview reflects the thoughts and experiences of our guests, and nothing here should be taken as financial advice.

Tell us more about your background. What were you doing prior to trading and crypto?

I got into crypto in ‘12 or ‘13, bought my first Bitcoin for $3-4 and used it for purchasing goods online when I was living in Korea. Upon graduating university, I forgot about Bitcoin because I was hacked a few times including the incident from Mt. Gox and forgot about crypto until early 2017, with massive kimchi premium and Chinese premium. In April of 2017, I was doing arbitrage-based algorithmic trading for a full year. I then decided to build my own exchange. Market failed after Korean government tried to shut the entire market down back then, KRW pair was doing more than >70% of trading volume, so it had a big impact. I lost everything I made. I spent a bit of time after focusing on trading specifically at BitMex, because my exchange was inspired by BitMex. The idea was to create an exchange focusing on retails, providing them with the ability to trade with 100x leverage. I was personally fascinated with the idea of leverage trading, so I began trading. I was also once at their leaderboard.

When I delved into the world of trading, I started learning about on-chain data. Back then, there was no CryptoQuant, there was sentiment but no Kaito. So I was literally digging into all the Excel Sheets downloading data to analyze tokens and flows. Then, I got into DeFi thanks to my team members that I used to work with, used to farm YFI very early on and LP-ing in Uniswap v0 and following the entire DeFi evolution throughout summer. At the same time, I’ve made several investments including some GameFi projects, some guilds. I missed dYdX in 2017, but I still have a strong thesis for Perp DEX market, I still think it will be a big thing down the line. I continued to study and learn more about DeFi, looking at on-chain data has been my edge since.

You have quite a unique style of trading, with a mix of on-chain and focus on perps. How has your trading style evolve over time (if it did)?

Initially, when I started trading on BitMex, I was just looking at Bitfinex because Bitfinex was where every whale was in the market at that time. It was very easy to trade as Bitfinex was essentially a leading indicator of the price itself. If the next Bitcoin price surged with massive volume, I could usually scalp over time by simply longing anything on Binance or any current exchange. However, this sort of edge gets diluted over time as more market participants enter and the market becomes efficient.

I started to look at more indicators, but in the end, they didn't provide much of an edge. Having traded stocks since I was 14, I was already familiar with tools and technical analysis. Over time, I noticed that everyone has the ability to look at these indicators. Everyone can look for divergences, MACD, Fibonacci, wave counts, etc. All these technical analysis tools are available in the market. I realized that this couldn't be my edge, especially when there are people better than me using these tools wisely. Moreover, there are many algorithmic traders with high-frequency trading bots that constantly use these technical analysis tools. I knew I couldn't outperform them.

So, as a human being, naturally I focused on understanding the market sentiment, structure, flows over time, and how it builds over a period of time. This gave me a better understanding of the market as well as improved my risk management. And that's where I am with my trading now.

Do you use less TA nowadays or is it mainly on-chain/ off-chain indicators?

Initially, my TradingView chart was very “dirty” with numerous lines such as trendline Fibonacci, volume RSI, volume MACD EMA SMA, and other indicators. However, as I interacted with successful traders, I learned that most who have thrived over decades in the market typically use fewer technical analysis tools. They might use trend lines or draw resistance supports, but that's about it. I also began to think that technical analysis might not be necessary to excel.

I believe its popularity is due to widespread usage. It's worth using because many people trust it, similar to how Bitcoin is considered digital gold because people believe in its value. This belief system works because many people invest based on these perceptions. Therefore, it's a useful tool for analysis. However, it doesn't guarantee a successful trading career just from relying on technical analysis.

What was your best trade this year? Was there a token or narrative you nailed as we are halfway through the year?

I started tweeting publicly in September last year. From the onset, I had my own thesis and narratives. I used to select four tokens each month, either at the end of the current month or the beginning of the next. I think I primarily invested in Solana. From September to February, I accurately predicted most of the market's top performers. Around February, I was among the few who held onto tokens that had increased about 8x in value. That was a successful prediction, I believe.

How did you end up with these tokens?

Around September, I first picked Solana, TIA, BONK as part of the 3-4 tokens of the month. First, I believe in Solana as I've mentioned on my tweets many times on why I am bullish. Electric Capital posts an annual developer report, and I've been studying these reports for the past four to five years. They contain data on the number of developers on different chains and their activity levels. I also look into high-level chain data from Artemis, as they provide transaction data and volume data, which indicates how active the chain is. Last year, Solana's price was ranging between $10 to $30 for some time. Despite this, the number of developers increased more than three times compared to 2020.

Initially, I thought I shouldn’t go all-in on Bitcoin and Ethereum, as their price appreciation wouldn't be as high as Solana's. This was the basis of my thesis. For my BONK thesis, I was looking at Twitter market sentiment at the time when everyone was looking for a beta for Solana. Since I had an extremely curated feed at that time, it helped me track high signal market sentiments, which led to their mindshare increasing a lot as everyone started pilling into the trade. It was the same for WIF after it was listed at Bybit, and the price went parabolic, which also led to mindshare multiplying. At the time, as there were no tools like Kaito available, I had to manually track market sentiment by looking at my timeline 24/7 to understand how market participants were thinking more generally. Another point for BONK was the fact that there was a memecoin trader that inspired a lot of retail participants with his killer trade, from 30k to $10M or more at the time.

What was your silliest paperhanded trade?

One of my close friends, who runs a fund in Korea, was trying to convince me about the potential of PEPE. He told me about investing millions in PEPE. At that time, I was more interested in Solana than ETH, so I didn't pay much attention to his advice. I kept telling him about the massive weekly resistance, but everything was broken and the value increased tenfold. It's still going up. It's one of the biggest names, aside from DOGE or SHIB. Ignoring his advice turned out to be a big mistake for me.

Do you think that ETH or SOL is going to make higher highs first?

ETH.

What’s your price target for BTC, ETH, SOL top this cycle?

In my opinion, at the end of the cycle, I don't have a specific price for Bitcoin (BTC) because I believe it's currently underpriced compared to the commodity market, equity market, and gold. For instance, in 2021, Bitcoin's price was $63,000 while gold was around $1,700. If you consider the relative value of assets, you'll see there's no fixed price that I can quote for Bitcoin.

My end target for Bitcoin for this cycle would probably be close to 25-30% of the market cap of gold. However, if gold's value increases, Bitcoin's price will likely rise too. Therefore, I can't provide a specific price. Moreover, if Bitcoin does reach that level, we're likely to see better performance from Ethereum and Solana. So, I don't have a specific number, but I do have a percentage target for Bitcoin.

Where do you think we are in the cycle and when do you think the cycle ends?

Perhaps I'll share the article that my researchers and I wrote at the start of this cycle. I've been considering many factors. Personally, I believe the cycle tops will occur towards the end of next year. Interestingly, I also think the bull market will arrive faster than we anticipate.

There has been another debate about whether this cycle will be prolonged, given the current maturity of the markets. It seems that things are less straightforward than in previous cycles. What are your thoughts on this?

I believe that once BTC breaks through the 100k mark, we might see a similar pattern to the previous cycle where most tokens, even the least popular ones, will experience a parabolic increase. However, the market structure has evolved since the last cycle, potentially leading to more efficient movements.

It's likely that most tokens will experience a correction of around 70-80 percent, similar to the last cycle. However, due to the influence of Bitcoin and the potential impact of Ethereum ETFs, the market structure might change. This could cap the downside for these currencies and synchronize their behavior with macro events, rather than individual tokens performing exceptionally well.

During the expected 30-40 percent correction, certain narratives might still outperform others. As these tokens reach their cycle tops, the market focus might shift to other sectors, leading to a decrease in volatility. This could result in a longer bear market than the previous cycle, but the exact outcome is uncertain.

Could you share your thought process on selecting trades? Specifically, could you walk us through how you structure your thesis and choose a token?

Right, structuring a thesis begins with selecting narratives based on a broad market view. For example, since September, I focused on four sectors: AI, Solana, and Solana beta, GameFi and IBC Cosmos, a Cosmos SDK products. These were the four sectors I was looking into. Why? I was observing trends on Twitter and what I noticed was the reflexivity of the space. The more people started talking about it led to an increase in mindshare. This is quite similar to Wall Street per say where they have a dedicated analyst looking specifically at timeline/ Twitter.

Technical analysis is also very useful in this case specifically using BTC as an index. If BTC drops by 30%, but a certain token doesn't drop as much or maintains the same downward trend as BTC, it usually indicates that there is a buyer in the market. Over a three to six month timeframe, comparison charts can reveal which tokens have more buyers than sellers. If a token aligns with your narrative and has a good TA, it becomes part of your watch list.

Next, I analyze their tokenomics and on-chain data to identify potential issues, such as whether the foundation is selling tokens or if there is buy pressure from institutions, etc. If everything checks out, it's added to my watch list.

For long-term trades, I gradually increase the size of spot bags. For perpetual trades, I look for trend breakouts and sentiments that pick up faster than others based on the chart flow. If everything aligns, it becomes a trade.

Market positioning is also crucial. If we're at the bottom of the range, it's an opportunity for aggressive trading with limited losses. If BTC and ETH are trending higher, caution is necessary, and it's advisable to wait for a pullback before entering the market. This is the thought process I've developed and apply to my own trades.

Yes, you've mentioned token selection quite a bit. So when it comes to setting price targets, how do you determine your strategy for taking profits and cutting losses if your trades don't go as planned?

As a trader, I don't typically set a price target. This approach largely depends on the current market conditions. If Bitcoin and Ethereum are continuously rising, setting a price target isn't necessary because everything is likely to increase.

In a bull market, the strongest players often outperform the rest significantly. Therefore, during times of strong market momentum, I believe that market sentiment becomes more important than the price itself. This is because markets are zero-sum - someone wins and someone else loses.

As a trader, I have to dump my bags to a person who catched up to the thesis I have developed way before. To reiterate, if it’s a bull market, I don’t have a price target. Dream bigger.

If the market is trading in a range, as we've seen in recent months, I try to establish a price target based on resistance levels and relative valuations with other projects in the same sector.

Regarding cutting losses, I usually don't set a stop loss. This is because larger orders can result in greater losses than expected if the market dips below the stop loss point. Instead, I prefer to use pair trading as a hedge, especially since I conduct extensive fundamental analysis on most market tokens.

For example, if I'm long on AR, which I'm generally bullish on, I might use tokens like Fetch AI or AGIX as a hedge due to their similar market cap and inflation rate, but weaker fundamentals. This strategy allows me to protect my gains. So, my approach to trading is not so much about taking losses as it is about strategic hedging.

Let’s talk about portfolio sizing. How did you change your sizing strategy as your portfolio grew, and how did you approach risk management?

If your net worth or trading stack is below $50,000, trading perp might not be the best option for you. It's advisable only if you're already proficient at it. There are better opportunities to be found in on-chain trading.

When your trading stake exceeds a few hundred thousand dollars, you can consider using a bit of leverage. However, trading Bitcoin or ETH may not be beneficial. Even if you manage a 20% upward move, your profits won't be substantial. If you attempt to increase profits by using high leverage, your risk appetite grows significantly. This is risky if you're not monitoring the market 24/7. One significant market swing could wipe out your account.

When your stack exceeds a few million dollars, focus on assets with a trading volume that allows for easy entry and exit. Your trading strategy also heavily influences this. If you're an intraday trader, you can size big using leverage because your trading timeframe is short.

If you're swing trading, avoid using excessive leverage. Use small leverage instead. Smaller market cap assets can be added to your watchlist for potential trading and exposure opportunities, depending on your risk appetite.

We've discussed your approach to selecting coins and your thought process behind that. Now, I'd like to shift the focus to portfolio distribution and construction. How do you structure the basket of tokens in your portfolio?

Portfolio construction varies significantly among traders. For instance, some traders aim to find high-risk, high-reward trades, betting a few thousand dollars on each trade. This approach is similar to VC investments where you invest in several projects with the hope that a few will yield significant returns, while the majority may go to zero.

On the other hand, there are traders who deal with a multitude of products, resulting in less concentration on each product. For these traders, diversification across various products works to their advantage.

Perp traders, aiming for exponential growth in a short time frame, often use leverage and tend to focus on fewer trades.

Investors, on the other hand, should always have some exposure to the crypto market, especially during a bull market. This is because, over time, cryptocurrencies tend to increase in value, while fiat currencies do not.

Spot traders need to select good tokens, categorize them into different narratives, and pick the top few products for exposure.

Investors and portfolio managers should always maintain some exposure to larger market cap assets to mitigate risk. If you put all your money into one token and it fails, you lose everything. The crypto market offers faster and higher multiples compared to traditional finance. Hence, it's important to seize these opportunities.

In my opinion, a balanced portfolio should have more than 50% in safer assets, 30% in medium-risk assets, and 20% in high-risk assets for potential high returns. As a trader or investor, always consider how each trade will affect your net worth. If a trade doesn't significantly impact your net worth, reconsider its value. For example, if your net worth is 10 million and you're only going after a $50,000 profit per trade, it won't significantly affect your overall financial standing. These are important factors to consider when constructing a portfolio.

Moving on to specific trade theses, you tweeted about AI quite recently. What’s your thinking for these AI coins as of now?

It's quite simple. Last cycle, I faded the Metaverse play. I discussed with my team the possibility of not letting our bias against “scams” prevent us from making money. It posed a question: do we want to be correct and not profit, or be mistaken and still earn?

I think many AI projects in the market don't correlate with their fundamentals, similar to memes. But if you profit from memes, it brings happiness, and people applaud you for your success. I was frustrated by this.

So, why not invest in an AI project, even if it seems like a vapor project? It's a new thing, and I don't want to repeat the mistake I made in the last cycle when I lacked exposure to such opportunities. So, in a way, I'm counter-trading myself, deciding to trade and invest in this project.

What about Bitcoin DeFi? Saw your recent tweets about holding STX, ORDI and a few other coins. Do you think there will be a rotation back to Ordinals/ Runes/ related BTC plays?

I believe there is a possibility, mainly because it's another experiment, right? Some people say it's the forced narrative before, but I mean, if there was an experiment, ERC 20 was an experiment. All these other standards after ERC 20, like 721, etc. were also experiments. There was always this element of experimentation. Crypto itself was born as an experiment, right. And I think there might be a chance that it's going to come back. But again, I might be wrong. However, as long as BTC has a constant inflow, I think there is a higher chance of having another run than not having a run at all.

What catalyst are you watching in the short term?

In the short term, one needs to consider whether the ETH ETF S1 application includes staking or not. If it does have staking, it will likely outperform for a while. However, if it doesn't, there may be a lack of selling points for fund managers to promote their ETFs, which may hinder its performance.

How important is it to be able to track things like mindshare and sentiment in your opinion?

I believe that Kaito significantly reduces the manual work that researchers and I have to do, such as browsing timelines on Twitter. Kaito integrates various sources of information, such as Discord chats, podcasts, YouTube channels, and conferences. This feature allows us to capture a lot of 'alpha'—information that isn't readily available in the market.

Alpha is often generated from overlooked details or aspects that haven't yet resulted in price appreciation in the market. For instance, if you're interested in a particular product, you can simply go to its title on Kaito and access all relevant information, including Discord chats or conference transcripts. These videos/ transcripts can provide a deeper understanding of the product compared to spending hours on Twitter.

This is because key players often participate in these YouTube videos or conferences, sharing valuable insights. People who have made significant achievements often share valuable market edges when they participate in these forums. This is partly due to ego; people tend to share their successes rather than their failures.

Kaito excels in this area by consolidating all this information from various sources, eliminating the need for you to be present at every forum.

What does it take to be a good trader?

I examine everything in detail, and I advise everyone to do the same. Trading success is not about obsessing over short-term charts, but about understanding the bigger picture. Many successful traders I know have achieved their status by focusing on long-term trends rather than scrutinizing every 15-minute chart update.

A successful trader's profit-and-loss graph usually shows small, but consistent upward movement. There are opportunities for quantum jumps from one level to another, where you can make significant gains with conviction, enduring market fluctuations without panic. However, these opportunities are not frequent; they occur only a few times in a trading cycle.

In a bullish market, when everyone is making profits, just following the trend doesn't make you an exceptional trader. To distinguish yourself and become a great trader, understanding the overall market dynamics is essential, rather than focusing on 15-minute or 10-minute charts. It's about identifying the right trade when it comes along and confidently riding it.