Katalyzers Spotlight: Michael (Grayscale)
Michael 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.
Disclosure: This content does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of investors. All opinions expressed are solely the opinions of Michael Zhao and do not reflect the opinions of Grayscale or any of its affiliates. Grayscale, its affiliates and clients may maintain positions in the digital assets or securities discussed
How, and when, did you first get into crypto?
I got into crypto back in 2021 when I started experimenting with Mango Markets on Solana. Initially, I was quite skeptical about the space, but it quickly captivated my interest after actually experiencing it firsthand. Eventually, I was so engrossed in crypto that I felt compelled to find a job in the industry.
Were you doing a similar thing in terms of research prior to joining the space?
Yes, I was an analyst at a real estate private equity company, where I evaluated investment opportunities in the Southeastern United States. It was somewhat akin to leveraged NFT trading, with some cashflows involved. Crypto, however, feels like the opposite asset class—while it has fundamentals, it has largely been driven by narratives for most of its history.
What are the unique things about researching crypto in particular?
Crypto is unique in its transparency compared to other asset classes, allowing researchers to access real-time data to evaluate the health and growth of projects. Unlike traditional finance, where metrics like EBITDA and Net Cash Flows are common, crypto is still early in terms of usage. Many metrics used to evaluate projects, such as "revenue," "circulating supply," and "fees," are still being defined. There is ongoing debate about which metrics are signals and which are noise.
How has your approach to research changed over time?
Over time, I've become more skeptical. When I entered crypto, projects like OHM were just starting, and it was easy to fall in love with certain narratives because everything seemed to be going up. However, when the market crashed, it revealed how flimsy and reflexive everything was. Now, in addition to fundamental and on-chain metrics, I also consider qualitative metrics like narratives to assess a project's legitimacy. Constantly testing protocols is essential as well.
What’s the most challenging part of your role?
The most challenging part is determining whether projects have organic demand and staying power. During the bear market of 2023, there was always a new trend—from decentralized hamster racing to friend tech (FT). While they were exciting at the moment, none had lasting power. Given how narrative- and hype-driven crypto is, finding projects with staying power is difficult.
How are you seeing the years ahead for the crypto market, especially with ETFs now in place?
With the introduction of spot ETFs in the US, we are approaching a shift in the holder base. Crypto is gradually maturing and attracting a different user base, which means the volatility of major assets like Bitcoin and Ethereum will likely compress over time, becoming more correlated with traditional finance. However, this transition is still a work in progress. I really don’t think most retail is here yet, and I’m not sure we will get the craziness of an up-only 2021 either given this is a different macro environment + people are still scarred from 2022. However, we might see a slow but gradual increase in retail users over time, as evidenced by, for example, the growing popularity of the Coinbase app.
What’s a consensus take on crypto that you think is incorrect or overly exaggerated?
The "fat protocol" thesis has been a dominant framework, suggesting that Layer 1 protocols accrue more value than applications in terms of market cap. While this has largely played out, I believe it will change eventually. Sustainable growth comes from users enjoying applications, and I think eventually this is where the value will accrue to. There are too many empty blockchains that are still trading at valuations way too high to be practical.
How are some of the ways you use Kaito in your research?
Kaito is invaluable for indexing and digesting large amounts of data. It indexes alpha in the form of tweets, articles, and podcasts, which are hard to search via Google or Twitter. Kaito's AI copilot offers clear and detailed summaries, saving time and enhancing the research experience. It’s like having an intern dedicated to digesting information from various sources.
How important do you think mindshare is for making decisions in crypto?
Mindshare is extremely important as crypto largely trades on narratives and momentum. Relative mindshare and sentiment are crucial for making investment decisions. Combining sentiment with market positioning indicators, like funding rates, provides valuable insights into whether positions are overheated.
How do you manage risk in such a volatile market?
Learning risk management and constantly assessing comfort with holding positions is essential. One way is to calculate your portfolio's beta against Bitcoin and evaluate comfort with current positions. Assessing market overheating through metrics like open interest, funding rates, and sentiment helps in making informed decisions about entering or exiting positions.
How do you stay updated with the latest trends and developments in the crypto market?
I stay updated through Twitter, Telegram, meeting with people, and constantly trying new things.
If you were to pick 3 altcoins to hold through 2025, what would your picks be?
I would choose JLP (Jupiter LP token), HFUN (or any strong projects on Hyperliquid), and some Polymarket bets. JLP has been a stable, value-accruing asset providing liquidity and earning yield via perpetual trading on Jupiter. HFUN and other solid Hyperliquid spot token projects are worthwhile due to their low market cap and strong organic demand. Polymarket offers tons of opportunities, especially with the upcoming election.
How do you balance short-term trading opportunities with long-term investment strategies?
Balancing short-term trading opportunities with long-term investment strategies involves twapping profits from short-term trades into long-term holdings of major assets or cash, depending on your market outlook.