Rainbow Bitcoin Chart: The Complete Guide to Analyzing Market Cycles

What Does the Rainbow Chart Hide Behind the Colorful Stripes?

The Bitcoin Rainbow Chart is not just a beautiful visualization. It is a powerful technical analysis tool that helps determine whether Bitcoin is undervalued or overheated in the market. As of writing, (2025-12-26), Bitcoin is trading at $88.94K with a daily increase of +1.51%, and the rainbow chart helps understand where we are in the long-term price cycle.

The chart operates on a logarithmic scale and uses a color-coding system to visualize historical price patterns. Each shade—from dark blue to dark red—indicates the market condition. It is both an entertaining and analytical tool that traders love for its simplicity in understanding complex data.

How to Read the Color Signals of the Rainbow Graph?

The color system in the rainbow chart is not random—each shade reflects a specific psychological market state:

Cold tones (accumulation zones):

• Dark blue (“Almost Sold Out”): Extreme undervaluation, potential market bottom
• Light blue (“BUY!”): Pronounced undervaluation, attractive entry point
• Green (“Accumulate”): Moderate undervaluation, accumulation phase
• Light green (“Still Cheap”): Slight undervaluation, still acceptable prices

Neutral zone:

• Yellow (“HODL!”): Fair valuation, demand-supply balance

Warm tones (overheated zones):

• Orange (“Is this a bubble?”): Early signs of overvaluation, increasing speculation
• Light red (“FOMO is intensifying”): Growing overheating, mass interest
• Red (“Sell. Seriously, SELL!”): Clear overvaluation, extreme prices
• Dark red (“Maximum Bubble Territory”): Critical overvaluation, cycle peak

This system allows quick orientation in the current market situation without complex calculations.

History and Evolution of the Tool

The Bitcoin rainbow chart appeared in 2014 thanks to Reddit user “azop.” Initially, it was a simple attempt to visualize long-term price levels using a logarithmic regression curve—a mathematical tool that smooths out sharp fluctuations and shows the overall trend.

The first version was useful but not perfect. In 2019, trader Rohmeo proposed an improved model known as the Bitcoin Rainbow Chart V2. This update gave the tool its characteristic “rainbow” shape and refined the mathematical basis of the color coding. Today, various platforms, including BlockchainCenter and TradingView, offer their adaptations of this tool.

Practical Application: Step-by-Step Guide

Step 1: Determine your current position on the chart

Open the rainbow chart and zoom in on Bitcoin’s current quotes. As of the analysis moment, (BTC = $88.94K), identify which color range the current price falls into. This instantly gives you an understanding of the current market sentiment.

Step 2: Interpret the color in the context of the cycle

Do not treat the color as an absolute signal. Cold shades (blue, green) suggest that buying may be attractive from a long-term perspective. Warm colors (orange, red) hint at caution or profit-taking.

Step 3: Analyze historical analogs

Look at how Bitcoin behaved in previous cycles when it was in the same color zone. Do you recognize patterns? History often repeats itself, though not always identically.

Step 4: Combine with additional tools

The rainbow chart is only part of the picture. Use it alongside:

• Trading volume (significant volume confirms movement)
• RSI (Relative Strength Index) to identify overbought/oversold conditions
• MACD to confirm trend
• Stock-to-Flow model (S2F) for long-term price forecasts

Such comprehensive use significantly increases analysis reliability.

The Connection Between the Rainbow Chart and Bitcoin Halving Events

Bitcoin halving occurs every four years and cuts the mining reward in half. This event creates artificial scarcity of new bitcoins and has historically been associated with long-term price growth.

On the rainbow chart, a curious pattern can be observed: around halving times, Bitcoin often appears in the lower ranges of the chart (blue and green zones), indicating relative undervaluation. After halving, as supply tightens and demand increases, the price gradually moves into the upper ranges (yellow, orange, red).

This cyclicality adds a historical regularity to the analysis, though it is important to remember: halving is just context, not a guarantee of price growth.

Strengths of the Tool

Visual simplicity: The color system allows beginners to instantly understand where the market stands without complex calculations.

Long-term perspective: The chart covers Bitcoin’s entire history, providing a clear picture of price evolution over more than a decade.

Accessibility: The tool is available on many platforms and is completely free.

Educational value: The rainbow chart helps newcomers understand market cycles and crowd psychology.

Supports long-term strategies: If you plan to buy over several years, this tool can help choose optimal moments.

Limitations and Risks of Use

Retrospective nature: The chart is based on historical data. Past trends do not guarantee future results, especially during global shocks.

Black swans: Unexpected events (regulation, geopolitical crises, technological failures) can disrupt historical patterns.

Subjective boundaries: The borders between color stripes are not carved in stone. Different analysts may interpret threshold values slightly differently.

Unsuitable for day trading: The chart operates on a monthly and yearly scale. For short-term tactical decisions, use other indicators.

Market evolution: As Bitcoin matures, the market becomes more complex. Old models may require updating.

How Accurate Is the Rainbow Chart?

The logarithmic regression used in the chart effectively smooths volatility and shows long-term trends. However, its accuracy depends on many factors:

• The model works well during relatively stable periods
• During crises or sharp reversals, it may give delayed signals
• The updated V2 version is more accurate than the original

Treat the tool as a rough guide, not a crystal ball. It is a valuable compass but not GPS.

Practical Example of the Current Moment

As of (December 26, 2025), Bitcoin is at $88.94K with a daily increase of +1.51%. On the rainbow chart, this price likely falls into the upper ranges (yellow-orange spectrum), indicating fair valuation or early signs of overvaluation. This signals that you might consider:

• Partially taking profits on existing positions
• Exercising caution or delaying new purchases
• Long-term investors can continue accumulating but may wait for better prices

Conclusion

The Bitcoin rainbow chart is a useful tool but not a magic solution. It should be used as part of comprehensive analysis, not as the sole trading signal source.

The chart well reflects long-term market cycles and helps beginners understand where we are in the bigger picture. However, remember its limitations: it is a retrospective tool based on historical patterns that may not repeat exactly.

Combine the rainbow chart with other technical indicators, fundamental analysis, and risk management. Be prepared to adjust your strategy as new information arrives. With this approach, you can navigate the volatile waters of the crypto market more consciously.

Frequently Asked Questions

What is the main purpose of the rainbow chart?
To provide a long-term visual representation of whether Bitcoin is undervalued, fairly valued, or overhyped.

Can I make money day trading using only this chart?
No. The rainbow chart is designed for analysis on a monthly and yearly scale. For day trading, more sensitive indicators are needed.

Why does halving influence the chart patterns?
Halving reduces the supply of new bitcoins, creating scarcity. Historically, this has been a catalyst for long-term growth, reflected in movement from lower (blue) to upper (red) ranges.

Should I rely entirely on this tool?
No. Use it as one component of your analytical system alongside other tools and your own analysis.