What is the Bitcoin rainbow chart?

The Bitcoin rainbow chart is a long-term chart that plots bitcoin's price on a logarithmic scale and overlays rainbow-colored bands around a fitted growth curve. Cooler colors at the bottom are labeled as periods of low sentiment, and warmer colors at the top as overheated markets. It is popular because it is easy to read at a glance, but it has clear limits.

What was the original Bitcoin rainbow chart?

The idea dates to 2014, during the bear market after the 2013 rally. Accounts credit a Reddit user, azop, with first posting a price chart with a rainbow overlay, partly as a joke. A Bitcointalk forum user known as trolololo then fitted a logarithmic regression curve to bitcoin's price, and joining that curve with the color bands produced the chart most people know. The number of bands has grown over time, and today's common versions use about nine.

How does the rainbow chart work?

The vertical axis uses a log scale, where each step up is a multiple of price rather than a fixed dollar amount. That keeps bitcoin's early years and recent years readable on one chart. The fitted curve runs through bitcoin's long-run growth, and the bands sit at set distances above and below it.

Each band carries a tongue-in-cheek label. On common versions, they run from "Fire Sale" in dark blue through "HODL!" in yellow up to "Maximum Bubble" in dark red. Many versions also mark the bitcoin halvings, since people link them to market cycles. For more on that idea, see what the bitcoin four-year cycle is.

What is the Bitcoin rainbow chart V2?

As bitcoin grew larger, its percentage gains shrank, and the original curve risked leaving price stuck in the lowest bands. CoinGecko and Cointelegraph say a recalibrated version came out in 2023. It flattened the curve to reflect slower growth, narrowed the bands for lower volatility, and refit the model using more recent cycles. LookIntoBitcoin says its own version was regenerated in October 2023. Different sites now use different curves and band edges, so the same day can fall in different colors depending on the source.

Is the Bitcoin rainbow chart accurate?

It fits the past well because it was built from the past. Robinhood notes that recalibrating the chart can change how earlier prices appear, which makes its record look better than it would have in real time. CoinGecko points out that price briefly fell below the lowest band during the 2020 COVID crash, and that the recalibrated floor has also been broken.

The chart ignores on-chain data, regulation, interest rates and other news. LookIntoBitcoin calls it a meme chart meant for fun, and says a correct curve does not mean bitcoin must keep following it. It works best as a picture of past sentiment, alongside tools like the 200-week moving average.

This guide explains how the chart works and is not a prediction or investment advice.