![]() Closing ThoughtsĪll in all, the bitcoin rainbow chart is a simple way to view Bitcoin prices, and can definitely help in your decision making process. Rather, it is an interesting way to look at Bitcoin prices – one that can be particularly useful in combination with other indicators and further analysis. As always, the rainbow chart is not an exact science and we do not recommend anyone to make trading decisions based on the rainbow chart. ![]() Historically, the red and blue regions have been turning points for Bitcoin. The rainbow chart is one of those indicators that has worked well since its inception. Prices can continue to fall after reaching the blue region. As with the red zone, the blue band – while the chart doesn’t show it – has no lower limit. In a few months, we’ll know if this works out well once again. In the past, buying Bitcoin in the blue zone has been an excellent decision. When price trades into these areas, many Bitcoin enthusiasts add to their Bitcoin holdings. ![]() To this day, the model recalibrates based on new price information, which means it will only become more accurate over time.īlue: Buy Bitcoin.The lowest regions on the rainbow chart (navy blue: Basically a fire sale, and blue: BUY!) represent cheap prices. This makes sense in Bitcoin context, as it takes an increasing amount of capital to push Bitcoin higher – resulting in diminishing returns.īy pairing the Bitcoin rainbow chart with logarithmic growth, the model was usable in both the present, and the future too. Rather than acceleration upwards, logarithmic growth decelerates over time. It’s used in a wide range of applications, from showing the growth of young children to this application: plotting Bitcoin prices. Logarithmic regression is essentially the opposite of exponential growth. ![]() While it was accurate as a decision-making tool for a while, it didn’t take long before a BitcoinTalk user Trolololo coined version 2.0 – pairing the rainbow chart with logarithmic regression. This first version was developed by reddit user Azop merely to display Bitcoin’s price history in a funny way. The original Bitcoin Rainbow Chart was much different from the current one. This rainbow was developed as a fun, instructive way to help make buying and selling decisions, with each colour of the rainbow having a designated instruction on whether to buy, sell, or hold. Moreover, users can derive different insights from the chart, but the biggest takeaway from the rainbow chart can be found in the name: the rainbow. The rainbow chart can help traders ignore the daily volatility, and view Bitcoin in the grander scheme of things.
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