Kevin Zhou, the enigmatic founder of Galois Capital, stands as a defining figure in the world of cryptocurrency trading. With a personal portfolio growing at roughly 100% annually since entering the Bitcoin market in 2011, and a hedge fund achieving a 35% compound annual return over five years—managing $250 million in assets—Zhou has mastered the art of market-neutral strategies. His fund has seen only four losing months, none exceeding a -1% drawdown outside the FTX collapse. In this revealing conversation, he traces his journey from a financially strained immigrant childhood to gaming obsession, and ultimately to high-stakes crypto trading—offering rare insights on pivotal events like the Luna crash and Ethereum’s Merge.
From Math Prodigy to Market Strategist
Born in Shanghai and raised in Hawaii after immigrating at age three, Kevin Zhou grew up in a household marked by financial hardship. His father pursued a PhD in mathematics while his mother studied electrical engineering, leaving little room for comfort. From an early age, he learned the value of money—and the fear of poverty.
His father nurtured his mathematical talent, teaching him calculus in community college by fifth grade. Zhou ranked first in Hawaii and among the top 120 nationally in the Johns Hopkins Talent Search, signaling early genius. Yet, his focus shifted toward video games—Diablo II, StarCraft, DOTA—where he became fascinated not with leveling up, but with in-game economies and trading systems.
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This pivot foreshadowed his career. "I loved the mechanics of exchange," Zhou recalls. "Trading runes felt more real than any leaderboard." His teenage hustle included flipping Pokémon and Magic: The Gathering cards at school—a primitive form of arbitrage that hinted at his future path.
He studied mathematics and economics at university, later pursuing a master’s degree during the post-2008 financial crisis. A brief stint as a back-end quant analyst on Wall Street involved replicating models in MATLAB and C++—tedious quality assurance work that never reached production. "I realized finance paid better than academia," he says. "And I hated being poor."
Entering the Crypto Frontier
Zhou entered the crypto space in 2011, investing when Bitcoin traded around $11. He poured every spare dollar from internships into BTC, holding through volatility. "Liquidity was terrible," he notes. "Spreads were wide, and many players were shady." Despite the chaos, reading Satoshi’s whitepaper and Hayek’s The Road to Serfdom solidified his belief in decentralized money.
He joined Buttercoin, a YC-backed exchange attempting market-making in 2013. But limited volume and low profitability led to its failure. "OTC trades were maybe $100K then," Zhou explains. "Margins were high, but scale was nonexistent."
After Buttercoin shut down, he joined Kraken to build their OTC desk during a brutal bear market. The company laid off over half its staff within a month of his arrival. Yet, strategic moves—like listing Ethereum in 2016 when only three exchanges supported it—helped Kraken survive and grow.
One pivotal OTC moment involved ETC after the Ethereum fork. Bobby Cho of Cumberland offered to buy Kraken’s entire ETC holdings for one cent each. Zhou hesitated. "What if it’s worth something?" He consulted Kraken’s founder Jesse Powell and decided to hold. The decision paid off—ETC surged once listed.
Building Galois Capital: Strategy and Discipline
In 2017, Zhou founded Galois Capital—a market-neutral crypto hedge fund raising $5.5 million. The name “Galois” (after mathematician Évariste Galois) was a compromise; “Julia Capital” was deemed too feminine. "It’s a French name nobody can pronounce," he admits with a laugh.
Initially focused on OTC trading—a familiar domain—the fund evolved into delta-neutral strategies, futures basis trades, and DeFi yield farming. They became one of Yearn Finance’s largest yield farmers under the alias yfi_whale, capturing nearly 25% of early YFI emissions.
Their tech stack migrated from Python to C++ for performance, enabling faster execution for market-making. Over five years, only four months were unprofitable, with max drawdown capped at 1%.
"Alpha decays fast," Zhou observes. "Cumberland, Circle, Alameda, Jump—they squeezed OTC margins. Basis trades faded as more players entered. Yield farming got crowded overnight."
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Success came from contrarian thinking: identifying mispricings others ignored. One such trade involved Fei Protocol in 2021. When FEI dropped to $0.85 due to redemption penalties, Zhou bought FEI while hedging ETH exposure. "Even if FEI went to zero, we profited from the hedge," he says. "It wasn’t the biggest win, but it was beautifully asymmetric."
Navigating the Ethereum Merge and Luna Collapse
Zhou’s analysis of Ethereum’s Merge was widely misunderstood as endorsing ETH POW (the proof-of-work fork). In reality, he was outlining a trade: buy the fork token while shorting perpetual futures likely to track ETH POS.
He correctly predicted widening futures basis and increasing Lido staking discounts. However, he overestimated ETH POW’s longevity—expecting it to retain 2% of ETH’s value versus the actual 0.5%. His $5 million consulting fee proposal to Vitalik Buterin and Chandler Guo was satire, mocking the absurd spending in ecosystem wars.
On Luna: "We made $15 million—but should’ve made $100 million."
The algorithmic stablecoin Anchor offered 20% yields—unsustainable from the start. Zhou waited until UST depegged by 30 basis points in May 2022. "That was the signal: a one-way bet." Until then, Galois had even earned Anchor’s 20% yield.
They exited UST, liquidated positions, and shorted aggressively. Ironically, they also facilitated cleanups on Anchor—helping the protocol function during collapse—while being accused of orchestrating the attack.
"At the end, Luna’s supply doubled every nine seconds," Zhou recalls. "You could buy at $0.01, sell at $0.10 a minute later—pure hyperinflation."
His regret? Not going all-in due to fund risk limits (max 10% position size) and internal debate. "I should’ve said: ‘This is once-in-a-lifetime—let’s go all out.’ But $15M isn’t bad for our fund size."
The Evolving Challenge of Crypto Trading
"Trading gets harder every year," Zhou says. "Only brief respites in bear markets." Retail players are gone; survival demands full-time focus and deep analysis.
Yet opportunities remain for those who dig deeper—"second- or third-order effects," like Michael Burry reading every page of subprime reports. "Front-running or chasing trends? That’s IQ density warfare against Jump, Jane Street, GCR. You need original thought."
He remains a Bitcoin maximalist: "Altcoins come and go. Few survive two cycles." Galois offers BTC-denominated shares (“BTCβ + market-neutral α”), aligning with his long-term conviction.
Even so, he acknowledges risks: "Bitcoin’s endgame—when block rewards vanish—is under-discussed. I expect a ‘tail emission’ fork will emerge, and capital will migrate."
FAQ: Key Questions Answered
Q: What was Kevin Zhou’s first major crypto trade?
A: His earliest significant move was holding Bitcoin from $11 onward and building OTC expertise at Kraken—laying the foundation for Galois Capital’s market-neutral approach.
Q: Why did Galois Capital avoid heavy leverage on Luna?
A: Risk management policies limited any single position to 10% of fund size, and internal disagreement delayed full commitment despite clear signals.
Q: How does Kevin Zhou view Ethereum’s future?
A: While skeptical of altcoins generally, he respects Ethereum’s ecosystem but remains unconvinced it surpasses Bitcoin’s monetary thesis without fundamental tech shifts.
Q: Did Galois Capital contribute to Luna’s collapse?
A: No—they profited from shorting but also helped liquidate positions on Anchor, supporting protocol stability during crisis.
Q: What trading strategy has been most profitable for Galois?
A: A mix of early DeFi yield farming (e.g., Yearn) and contrarian macro trades like Fei Protocol arbitrage using hedged positions.
Q: Is Kevin Zhou still active in crypto markets?
A: Though less public, he remains engaged, emphasizing that true edge comes from independent thinking—not following consensus.
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Final Reflections: Confidence Over Certainty
Zhou reflects on his journey with humility: "I’d give myself 40–60 percentile on pure returns. Most people earn what they’re due—within an order of magnitude." He regrets not leveraging earlier: "Borrow to buy Bitcoin? Not advice—but the risk-reward justified it."
To his younger self: “Start sooner. No one is ever ready.”
And to the world: “Be confident—but stay skeptical. Flip the script when needed. But above all: shoot first, ask questions later.”