GlossaryBitcoin Rainbow Indicator
Bitcoin Rainbow Indicator
The logarithmic regression of the well-known Bitcoin Rainbow Chart: two fixed straight lines over the age of the network span a band that is divided into eight colored zones. The zones sit directly over the candles and reach two years past the last candle. The model shows whether Bitcoin is cheap or expensive relative to its growth curve so far.
On the chart
- The eight bands sit in color over the candles, with support and resistance outlined as bright lines.
- The band runs past the last candle into the future, and the chart leaves about two years of space on the right for it. Because the lines depend only on the date, the projection is also exactly the model.
- When you move the mouse over the chart, the legend names the zone of the candle with its dollar bounds on that date. A card next to it lists all eight zones with their bounds and marks the zone of the price, also to the right of the last candle in the projection.
How to read it
The lower zones have historically been accumulation areas, the upper ones distribution areas. The model helps less with timing than with the size of a position: the higher the price sits in the band, the more of the future return it has already priced in according to this curve. The 2013 high was about 8.4 bands above support, so above the rainbow; the March 2020 low was around −0.4, just below it.
Limitations
- Curve fit, not a law of nature: The model assumes that past growth continues. With each cycle the price reached lower bands, and the projection is only as good as this assumption.
- Bitcoin only: The constants are fitted to Bitcoin's price history. On other symbols, the study is not available.
- Interval: Intended for daily to weekly charts.
- The only settings are for the appearance.