What Is the Bitcoin Rainbow Chart?

The Bitcoin Rainbow Chart is one of the most recognizable long-term trend analysis tools in the cryptocurrency space. It transforms the price fluctuations of Bitcoin since its inception into an intuitive valuation map through a series of colored bands.

When prices sink into the deep blue area at the bottom, panic and sell-offs permeate the market; when prices leap into the deep red area at the top, greed and bubbles emerge. A chart born from community jokes has now become an alternative compass for crypto investors navigating through bull and bear cycles.

The Mystery of Origins: From Joke to Professional Tool Transformation

The birth of the Bitcoin rainbow chart is quite dramatic. In 2014, a Reddit user “azop” created it as a satire. Bitcoin price The dramatic fluctuations will overlay rainbow-colored bands on the logarithmic price chart, jokingly referred to as “the price of Bitcoin is as unpredictable as a rainbow.”

This tool, originally known as the “meme chart,” unexpectedly gained vitality in community dissemination.

The real turning point occurred in 2019. Developer Rohmeo launched the V2 version of the rainbow chart on the BlockchainCenter website, introducing a logarithmic regression model and curved color bands, significantly enhancing the scientific nature and visualization effects of the data.

The new version is inspired by the logarithmic regression idea proposed by BitcoinTalk forum user “trolololo” in 2014. From satirical cartoons to professional tools, the rainbow chart has made its glorious transformation.

Ribbon Language: Seven Colors to Decode Market Sentiment

The core value of the rainbow chart lies in using colors to delineate the valuation ranges of Bitcoin, with each color corresponding to a clear market sentiment and operational suggestion:

• Deep Blue Band (“Basically a Cheap Sell-Off”): Severely Undervalued, Historic Bottom-Fishing Opportunity
• Cyan Band (“Buy Now!”): Clearly undervalued, strong buy signal
• Green zone (“Accumulate”): Value range, suitable for gradually building a position.
• Light green band (“still very cheap”): mildly undervalued, selectively adding positions
• Yellow Band (“Hold Long Term!”): Reasonable Valuation, Maintain Position and Wait.
• Orange Band (“Is this a bubble?”): Valuation is high, beware of pullback risks
• Red Band (“Sell Quickly!”): Seriously Overvalued, Consider Taking Profit

These ribbons are based on logarithmic regression calculations, effectively filtering out the “noise” of short-term price fluctuations and highlighting the long-term value trajectory of Bitcoin.

Practical Guide: Four Steps to Unlock the Investment Value of the Rainbow Chart

Locate Current Price Range

Visit data platforms such as BlockchainCenter, focus on the far right of the chart, and confirm the specific color band position of the Bitcoin price. As of June 2025, after breaking through 100,000 dollars, the Bitcoin price is located in the transition area between orange and red.

Analysis Based on Historical Performance

Review the historical performance of Bitcoin in the same color bands. For example, at the end of 2018, the price fell into the deep blue band (around 3000 - 4000 dollars), which then initiated a two-year bull market; while in 2021, when it reached the deep red band (64000 dollars), there was a significant correction.

Multi-Indicator Cross Validation

Relying on a single tool can easily lead to misguidance; it is necessary to combine it with other indicators to strengthen judgment:

• Trading volume changes: Abnormal spikes in volume may indicate a trend reversal.

• Technical Indicators: RSI overbought/oversold, MACD trend divergence provide technical evidence.

• Macroeconomic Environment: Interest Rate Policies and Inflation Data Affect Capital Flows

Developing Investment Strategies

• Deep blue to light green band: Start regular investment or increase investment ratio
• Yellow Band: Maintain position, avoid chasing highs and cutting losses.
• Orange-red band: Take profit in batches to control position risk

Controversial Duality: The Coexistence of Advantages and Limitations of Rainbow Charts

Core Advantages

• Visual Intuition: Complex valuations can be read in a second, highly beginner-friendly.
• Historical Anchoring: Based on decades of data accumulation, verifying long-term patterns.
• Sentiment Quantification: Transforming market psychology into actionable color band boundaries

Limitations That Cannot Be Ignored

• Lagging: Relies on historical data, making it difficult to timely reflect sudden black swan events.
• Parameter subjectivity: The ribbon width and color threshold depend on manual settings, which leaves room for optimization.
• Short-term invalidation: In extreme market conditions, there may be instances where the price temporarily breaks through the boundaries of the color bands (for example, the V1 version was forced to add a purple band to respond to the price crash).

Dialogue between the Market and the Rainbow Chart in 2025

The Bitcoin market in 2025 presents three major characteristics, providing a new interpretive dimension to the rainbow chart:

Valuation Challenges After New Price Highs

Bitcoin will break through 100,000 USD by the end of 2024 and will fluctuate between 100,000 and 110,000 USD in June 2025. According to the rainbow chart standard, the price is in the “orange-red” transition zone, indicating high valuation and the risk of a pullback.

The Underlying Logic of Increasing Scarcity

After the fourth halving, the daily production of Bitcoin has decreased to 450 coins, and the next halving (in 2028) will further reduce it to 225 coins/day. The ongoing increase in scarcity may reshape the valuation axis of the future rainbow chart.

Potential Risks of Centralized Mining

Currently, the six major mining pools control over 95% of block production, with Foundry and AntPool accounting for more than 50% combined. The concentration of computing power may affect the network’s decentralization characteristics, becoming an important variable that has not been quantified in the rainbow chart.

Institutional investors quietly add the Bitcoin rainbow chart to their dashboards, while retail investors swipe through this colorful curve on their mobile screens. From deep blue despair to deep red frenzy, the value of the rainbow chart lies not only in prediction but also in providing a visual language for market sentiment.

As Bitcoin hovers around $110,000 in 2025, the flashing warning of the orange band reminds investors that the future of the crypto market still follows the ancient laws of scarcity and crowd psychology.