We’re going to discuss a coin that predictably outperformed Bitcoin (BTC). 

Over the past three weeks, it returned 43% while Bitcoin made just shy of 15%. That’s almost 3x the return of BTC over the same time period.

It’s also a coin that no one is talking about, but that’s the key to its predictability. In fact, it’s part of a class of coins that I like to call Mechanical Coins.

To explain today’s idea, which is part of our 1 Chart Lessons series, let’s start with a story.

A Story

Back in the 1990s, Peter Lynch managed the Magellan Global mutual fund. He never had a down year and under his stewardship, the fund returned an astronomical 19.1% compound annual growth rate.

His book, One Up on Wall Street, is still one of the best reads out there for investing and trading ideas. 

In it, he explains that a key to his success was in buying a specific class of out-of-favor stocks.

The unsexy stocks.

Lynch recalls that one of his best buys was the “McDonald’s of funeral homes.” People don’t like talking about death–it’s an unsexy subject–but people also die rather consistently.

As long as the population kept expanding, the addressable market for funeral homes would likewise keep expanding. The firm he was looking at had competent management and a proven record for expanding the franchise.

So he bought it and waited. When everyone eventually noticed the returns, they were too late.

Something similar exists in the crypto world.

The Idea

While analysts, myself included, talk about narratives almost constantly, it’s important to recognize that not everything depends on narratives.

There is a class of coins in the crypto world that is analogous to Peter Lynch’s “unsexy stocks,” which could be termed “mechanical” coins.

By “mechanical,” I mean that the price of the coin moves as a function of some other feature, so the price is mechanically determined. 

The clearest example of these mechanical coins are exchange coins. 

If trading volume goes up, the coin’s price rises. If down, then the coin’s price follows.

Why?

Because people using the exchange buy the coins to get cheaper fees. More transaction volume thus translates directly into more buying pressure. 

As a bull run starts, these coins will be late to spike because retail investors tend to be late. But, just like Lynch’s funeral home stock, they reliably outperform in the long run.

Let’s look at the chart to see how this works in action.

The Chart

Featured below is KuCoin’s (KCS) price action. The orange line is Bitcoin (BTC) for comparison.

Relative to Bitcoin’s price action KCS continued to slide for months. Retail traders simply didn’t want anything to do with cryptocurrencies. But after almost a year of volatile uptrending, the traders returned after BTC leaped considerably on news of a likely spot ETF approval.

The thick white line is a moving average. Specifically, it’s the least squares moving average using a 160-day unit count. The LSMA 160 can help you identify long-term trends and it’s typically better than standardly discussed moving averages, such as the SMA 200.

The idea is that so long as the price has closed above the moving average (above the white line), then the trend is your friend and you should feel confident in accumulating the coin. 

You’ll notice two accumulation periods at the bottom. The first was a long consolidation period and the second was a short period following a dramatic price increase.

At present, the coin has nearly entered a new “trading range” (in the blue box) as technical analysts would say. Analysis of this sort tends to be a self-fulfilling prophecy, as most traders expect other traders to act on it … thus making it so.

The main thing to look for is another consolidation period before buying in again. In a strongly up-trending market, consolidation periods are often no more than one or two weeks. The coin might be entering one such period right now.

Am I Too Late?

By way of conclusion, let’s wrap up by addressing the question that’s likely on your mind: are you too late for this trade?

If we are in the beginning of a bull market then you absolutely are not too late. KCS had a previous all-time high of about $26 and it has very little coin dilution. 

If the coin breaks its all-time high by 3x, because more retail traders enter the market, then a 10x return from current values is in the offing.

KCS’ success will depend largely on the firm’s ability to navigate the new legal requirements for cryptocurrency exchanges in Europe and the UK. That's something that affects ETH too, if we're honest.

Such progress will need monitoring and we will continue to discuss its status in our 👉Discord Server👈 which you can join for free.

Of course, KCS is not the only exchange coin and exchange coins are not the only mechanical coins. I happen to believe there are other coins in this space that are more promising. Paid subscribers receive access to our review of those other coins + algorithmic data on their trends. 

That’s it for this lesson.

If you learned something then please be sure to LIKE 👍 SHARE 🔁 and Follow🔔.

Happy Trading!!

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