Rainbow Bitcoin Chart: How Modern Traders Use RainbowChart to Analyze Trends

When BTC is priced at $87.27K with a daily decline of -1.05%, many investors wonder: how can you tell if an asset is in accumulation or overheating? The answer often lies in a tool that both entertains and informs — the Rainbow Bitcoin Chart.

What’s Behind the Colorful RainbowChart?

The Rainbow Bitcoin Chart (RainbowChart) is a technical analysis tool that visualizes long-term price trends on a logarithmic scale. Instead of standard candlesticks and lines, it uses a system of colored bands, each representing a specific market phase.

The chart is based on a logarithmic regression curve. This mathematical model smooths out sharp Bitcoin price fluctuations, allowing traders to see the true long-term trend rather than reacting to short-term volatility noise.

The RainbowChart color scheme includes nine levels:

• Dark blue and light blue zones indicate extreme undervaluation
• Green shades suggest accumulation periods
• Yellow level reflects fair value of the asset
• Orange and red zones warn of possible overvaluation and market overheating risks

From Simple Idea to Standard Analysis Tool

The history of RainbowChart began in 2014 when Reddit user “azop” created the first version of the chart. It was a simple yet brilliant concept — applying color coding to a logarithmic scale to visually represent market cycles.

A real revolution occurred in 2019. Analyst Rohmeo revamped the original model, creating the Rainbow Bitcoin Chart V2. The new version adopted the distinctive “rainbow” shape, and the mathematical formula was optimized for greater accuracy. This version is now widely used on data analysis platforms and actively employed by traders worldwide.

Practical Application: How to Read the RainbowChart

Using the Rainbow Bitcoin Chart involves three simple steps:

Identify the current price zone. Look at which color band the current BTC price falls into. At $87.27K, the chart will show whether the price is in an undervaluation zone or approaching overheating.

Interpret the signal. Cool colors (blue, green) suggest entry opportunities. Warm colors (orange, red) require caution. The yellow level indicates a demand-supply balance.

Combine with other tools. The RainbowChart works best when used alongside trading volume, RSI, MACD, and the Stock-to-Flow model. This comprehensive approach helps filter out false signals and make informed decisions.

Bitcoin Market Cycles Through the Prism of RainbowChart

Historical data analysis reveals an interesting pattern: the RainbowChart records symmetrical cycles in Bitcoin’s behavior.

When the asset is in blue and green zones, it usually coincides with periods of low activity and mass sell-offs. Investors who entered positions at these levels often received significant premiums in subsequent cycles.

The yellow zone marks a point of equilibrium — when the market valuation seems fair and balanced. Further buying pressure pushes the price into orange and red zones, which historically precede corrections.

How Bitcoin Halving Events Affect the RainbowChart

Bitcoin halving occurs every four years and halves the mining reward. This creates a scarcity of new supply and has historically shown a pattern on the RainbowChart.

Immediately before and around the halving, Bitcoin is typically in the lower zones of the chart, indicating relative undervaluation. However, in the months following the halving, as supply tightens and demand grows, the price gradually moves up through the color bands — from green zones to yellow, and then higher.

This correlation between halving cycles and RainbowChart phases adds extra context to the asset’s long-term price behavior. But it’s important to remember: halving is a historical reference, not a guarantee.

Why Traders Value the Rainbow Chart

Visual simplicity. The color bands allow for a quick assessment of the overall market state without complex calculations and formulas.

Long-term perspective. The chart covers Bitcoin’s entire history since its inception, providing a unique view of the asset’s evolution.

Educational value. Beginner traders find it easier to understand market cycles thanks to the intuitive design of the RainbowChart.

Support for strategic planning. The tool helps identify entry and exit points for long-term positions.

Critical Limitations of the RainbowChart You Should Not Ignore

Despite its usefulness, the RainbowChart has significant limitations:

Retrospective nature. The chart is based solely on historical data. Past cycles do not guarantee future repetitions — especially in a constantly evolving crypto market.

Simplified model. The RainbowChart does not account for regulatory decisions, geopolitical events, technological upgrades, or macroeconomic factors that can radically alter price dynamics.

Unsuitable for short-term trading. The logarithmic regression smooths volatility, making the chart less useful for daily or intraday strategies. Other tools are needed for such analysis.

Subjective boundaries. Different analysts may interpret the borders between color bands differently, leading to varying conclusions.

Market evolution. As the cryptocurrency market matures, past patterns may become outdated, requiring model adjustments.

Practical Takeaway

The Rainbow Bitcoin Chart is a powerful tool for long-term analysis but not a panacea. It works best as part of a comprehensive trading system that includes technical and fundamental analysis, risk management, and disciplined trading tactics.

Use the RainbowChart to understand general market cycles and identify strategic entry points. But always complement it with other indicators and your own analysis. No chart can account for all variables driving the crypto market.

Stay informed, but don’t become a slave to a single tool. Adaptability and critical thinking are the true skills of a successful trader.