July 14, 2024

What is the Bitcoin Rainbow Chart and Is it Reliable

4 min read
Bitcoin Rainbow Chart

The Bitcoin rainbow charts 2022 trend is holding strong among crypto bulls in the home stretch of the year. The widely watched Bitcoin price has certainly touched a broad range of levels year to date in 2022. BTC started out the year just three hundred dollars shy of $50,000 for a coin on liquid exchange markets.

Since then, it’s traded in the forty thousands, thirty thousands, twenty thousands, and finally stuck around the $20,000 level over Q3. So it’s no wonder that the Bitcoin Rainbow Charts has been such a popularly discussed and memed crypto analyst recommendation tool in 2022.

Using the charts as a static recommendation tool, heedless to FOMO and FUD, agnostic to news headline addicted emotional reactions, investors in bitcoin can look to the chart to see when it’s probably a rational time to buy, hold, or sell bitcoin based on cyclical market dynamics and historical bitcoin prices.

What Is The Bitcoin Rainbow Chart?

The Bitcoin Rainbow Chart takes the historical prices of bitcoin and displays them on graph with time over the x-axis and a logarithmic price line over the y-axis.

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Because it’s logarithmic, each higher section of the graph shows 10x more price increase or decrease as the previous section. Overlaying the price chart is a band with a range of recommendations to buy, hold, or sell.

It’s not merely heedless to Fear of Missing Out during market peaks and Fear, Uncertainty, and Doubt during market bottoms. The Bitcoin Rainbow Charts is actively anti-FOMO and FUD.

Bitcoin Rainbow Chart 2022

The Bitcoin Rainbow Chart has been especially popular in 2022 because of the extremely broad ranging price action of the digital commodity on crypto exchanges.

The year long capitulation from an outrageous all time high price of $68,000 last November is decidedly a “crypto winter.” The rainbow chart has spread around as a recommendation tool as market participants seek guidance on what to do to manage their holdings. The chart displays the historical price of bitcoin over the past decade. The band of recommendations are calibrated from this historical price information.

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As prices rise into the sell ranges of the band, investors would have made profits if they had sold over various periods. As prices fall into the buy range of the band, investors would have realized gains if they had sold over various periods. This backtesting strategy is a classic investor analysis tool used to make stock picks.

Bitcoin Rainbow Chart 2030

Some of the Bitcoin Rainbow Charts project the future price of bitcoin through 2030 based on the historical price of bitcoin. The band of prices ranges on these does not correspond to Buy, Hold, and Sell recommendations.

They correspond to Best, Likely, and Worst case scenarios based on bitcoin’s historical average performance, and the assumption that growth in BTC price will remain logarithmically exponential through 2030.

It is not these kind of Bitcoin Rainbow Charts referenced here. They are used for long term investment planning by bitcoin investors planning their portfolio allocations taking into account these long term future price projections.

Past performance does not necessarily predict future results. And these charts’ predictions may or may not be reliable based on their methodology and criteria.

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Is The Chart Reliable?

The Bitcoin Rainbow Charts that make analyst recommendations on current price conditions are to some degree reliable. They’re calibrated to historical bitcoin price data. They are essentially a simple algorithm a human can use to put some sound trading principles into a form that is actionable automatically at different price levels.

Those principles are, “Buy cheap. Sell dear,” as legendary investor extraordinaire Benjamin Graham wrote in his book, “The Intelligent Investor.” That’s the book that inspired Warren Buffet to seek his fortune in investing as a youth, and he followed its philosophy closely throughout his outstanding career. Or as a chart watching Wall Street broker would say, “Buy low, sell high.”

Ethereum Rainbow Chart? Cardano Rainbow Chart?

Altcoin Rainbow Charts? Sure, that’s a great question. There is not as of the time of publication a Cardano Rainbow Chart the author was able to find. There are, however, a number of Ethereum Rainbow Charts available around the web. They follow the same principle of the Bitcoin Rainbow Charts— sell when the market is overbought and buy when it’s oversold. 

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