Bitcoin Rainbow Chart
Logarithmic Growth Curve Model for Long-term Bitcoin Valuation
About the Bitcoin Rainbow Chart
The Bitcoin Rainbow Chart is a logarithmic regression model that visualizes Bitcoin's price evolution through color-coded bands. Originally created by Über Holger and refined by the community, it transforms complex price data into an intuitive rainbow visualization that helps investors understand market cycles.
Methodology: The chart uses a logarithmic regression formula fitted to Bitcoin's price history since 2012, creating nine distinct bands that represent different market sentiment zones from extreme fear to maximum euphoria.
Each band corresponds to a specific deviation from the logarithmic trendline, with cooler colors (blues and greens) indicating undervaluation and warmer colors (oranges and reds) suggesting overvaluation. This simple yet effective visualization has helped countless investors navigate Bitcoin's volatile price movements with greater confidence.
Why This Metric Matters
Long-term Perspective
The Rainbow Chart uses logarithmic regression to smooth out short-term volatility and reveal Bitcoin's long-term growth trajectory, helping investors maintain perspective during extreme market movements.
Intuitive Visualization
Color-coded bands make it easy to quickly assess market sentiment at a glance, from cool colors indicating undervaluation to hot colors signaling overheated conditions.
Historical Accuracy
The model has successfully captured Bitcoin's price movements since 2012, with prices consistently respecting the logarithmic growth curve boundaries over multiple market cycles.
Strategic Positioning
By identifying where price sits within the rainbow bands, investors can make more informed decisions about accumulation, holding, or profit-taking strategies.
Historical Cycle Top Predictions
2013 Double Peak
Bitcoin reached the 'Maximum Bubble' band twice in 2013, first in April at $266 and again in November at $1,163. Both times preceded corrections of over 80%.
Band: Maximum Bubble (Red)
2017 Euphoria
The December 2017 peak at $20,000 pushed Bitcoin deep into the 'Maximum Bubble' territory, maintaining these levels for several weeks before the inevitable correction.
Band: Maximum Bubble (Red)
2021 Cycle Top
Bitcoin reached the 'FOMO Intensifies' to 'Maximum Bubble' transition zone at $69,000 in November 2021, marking the cycle peak with precision.
Band: Entering Maximum Bubble
2015 & 2018-2019 Bottoms
During bear markets, Bitcoin consistently found support in the 'Fire Sale' and 'Accumulate' bands, offering exceptional long-term entry points.
Band: Fire Sale (Blue)
Accumulation Zone Success
The Rainbow Chart's 'Fire Sale' band has marked every major Bitcoin bottom since 2012, while the 'Maximum Bubble' band has captured every significant top, demonstrating remarkable consistency across multiple cycles.
Understanding the Rainbow Bands
Deep Undervaluation
Extreme fear and capitulation. Historically the best long-term buying opportunity. Bitcoin trading far below its logarithmic trend.
Strong Buy Zone
Excellent value for long-term investors. Market sentiment negative but price offers significant upside potential.
Fair Value
Reasonable entry point. Bitcoin trading near its long-term logarithmic trend line. Dollar-cost averaging recommended.
Hold Position
Normal bull market territory. Hold existing positions, avoid aggressive new entries. Monitor for further developments.
Caution Zone
Elevated prices, increasing speculation. Consider taking partial profits. New entries carry higher risk.
High Risk
Extreme greed dominating market. Media attention peaks. Strong profit-taking signal for long-term holders.
Sell Signal
Unsustainable price levels. Historical cycle tops occur here. Maximum risk for new entries. Strong distribution zone.
Important Considerations
- •Logarithmic Model Limitations: The Rainbow Chart assumes continued logarithmic growth, which may not hold indefinitely as Bitcoin matures and adoption plateaus.
- •Not a Trading System: The bands provide context for long-term positioning but should not be used for short-term trading decisions.
- •Historical Bias: The model is fitted to historical data and may need recalibration as market dynamics evolve.
- •Combine with Other Metrics: Best used alongside on-chain indicators, macro factors, and other cycle indicators for comprehensive analysis.
Frequently Asked Questions
How is the Rainbow Chart calculated?
The Rainbow Chart uses logarithmic regression on Bitcoin's historical price data since 2012. The regression formula creates a base trendline, and multiple bands are created at logarithmic intervals above and below this line, each assigned a color and sentiment label.
Why use logarithmic scale instead of linear?
Bitcoin's price growth has been exponential over time. Logarithmic scaling better captures percentage-based movements and makes early price action visible alongside recent data, revealing patterns that would be invisible on a linear chart.
How often are the bands recalibrated?
The regression model is periodically updated to include new data, typically annually or after major market cycles. However, the core logarithmic growth pattern has remained remarkably consistent since Bitcoin's early days.
Can the Rainbow Chart predict exact prices?
No, the Rainbow Chart shows probable ranges based on historical patterns, not specific price targets. It's designed to provide context about market valuation relative to long-term trends rather than precise predictions.
Disclaimer: This metric is provided for informational purposes only and should not be considered investment advice. Historical performance does not guarantee future results. Always conduct your own research and consider your risk tolerance before making investment decisions. Cryptocurrency investments carry significant risk and may result in total loss of capital.