LEARN BITCOIN RAINBOW CHART INDEX IN 3 MINUTES ——BLOCKCHAIN 101

Summary

The Bitcoin Rainbow Chart Index is a long-term valuation tool that applies a logarithmic regression curve to historical Bitcoin price data and overlays it with color bands ranging from deep blue (extreme undervaluation) to dark red (extreme overvaluation) . Traders and investors use this colorful chart to gauge market sentiment, identify potential buy zones in the cooler blues and greens, and spot sell signals in the warmer yellows and reds . Originally created as a “fun” visualization by early Bitcoin enthusiasts on forums like Bitcointalk, it has evolved into a widely followed indicator thanks to refinements by community members and platforms like BlockchainCenter and Binance .

What Is the Bitcoin Rainbow Chart Index?

The Rainbow Chart is built by fitting a logarithmic regression curve to years of Bitcoin price history, smoothing out daily volatility to highlight long-term trends . It then divides this curve into colored bands—typically seven to nine—each representing different valuation levels, from “Basically a Fire Sale” in deep blue to “Maximum Bubble Territory” in dark red . This format allows users to quickly see whether Bitcoin’s current price is historically cheap, fair, or expensive relative to its past .

Where did the chart come from? Who invented it?

The earliest version was created in 2014 by a Reddit user named “trolololo”. It was later improved by the community, with extended versions provided by platforms like BlockchainCenter and Binance Academy. The most commonly used version today is called the “Bitcoin Rainbow Chart v2”, published by Blockchaincenter.net.

The underlying mathematical logic is actually quite simple:

It collects Bitcoin’s price data starting from 2010 (daily or weekly closing prices);
Applies a logarithmic regression curve to smooth out the long-term trend;
Then slices this curve into multiple colored “bands” — each band represents a different valuation level.

So, it doesn’t predict future prices — what it does is help you understand the current valuation based on historical patterns. And that’s the important part.

How Does It Work?

1）Data Collection & Regression: The chart compiles weekly (or daily) closing prices and applies a logarithmic regression formula to fit a smooth curve through the data points

2）Color-Band Overlay: That curve is segmented into color bands. Each band corresponds to a price range calculated from the regression, with colors transitioning from cool (undervalued) to warm (overvalued)

3）Version Updates: The original “v1” chart by Azop on Reddit was later refined into “v2” by Rohmeo and others, fitting data up to 2022 and adjusting the formula for more accurate band placement

How to Read the Rainbow Chart in 3 Minutes

1）Locate Today’s Price: Find today’s Bitcoin price plotted against the colored bands.

2）Assess Valuation Zone:

If price sits in blue/indigobands, Bitcoin is historically undervalued—potential buy zone.
Green/light greensuggests a neutral/accumulate zone.
Yellow/orangesignals caution—market heating up.
Red/dark redindicates overvaluation—possible sell or profit-taking zone.

3）Contextualize with Halvings: Note Bitcoin’s four-year halvings often align with price moves between bands, reinforcing the chart’s long-term perspective

4）Combine with Other Tools: Use alongside on-chain metrics, moving averages, or sentiment indicators for more robust decision-making

Advantages of the Rainbow Chart

Intuitive: It presents historical data trends using color, making it much more user-friendly than staring at a bunch of technical indicators.
Long-term perspective: It ignores short-term fluctuations and helps you understand whether it’s a good time to buy based on long-term trends.
Strong community consensus: Most crypto veterans and HODLers look at it regularly, making it a valuable reference for long-term investors.

Limitations of the Rainbow Chart

Not suitable for short-term trading: It won’t tell you if the price will go up or down tomorrow — it only shows the trend.
Not “absolute truth”: It’s an empirical model, not a crystal ball. Don’t expect pinpoint predictions.
Ignores macro variables: Things like interest rates, regulatory changes, or black swan events aren’t reflected in the chart at all.

Key Takeaway

The Bitcoin Rainbow Chart Index offers an intuitive, visually engaging way to understand Bitcoin’s historical price context and potential market extremes. While not a precise forecasting tool, it serves as a quick-reference guide for long-term investors and can be mastered in just three minutes.