Rainbow chart of cryptocurrencies: How traders use this tool to analyze Bitcoin

If you have been following the Bitcoin market for a long time, you have probably come across mentions of the “radrainbow chart” — a colorful visual tool that helps traders navigate long-term BTC price cycles. With Bitcoin’s current price at $89.02K and a daily increase of +1.61%, such an analytical tool is becoming increasingly relevant for those planning their entries and exits.

How it works in practice

The essence of the crypto rainbow chart is straightforward — it is a logarithmic visualization of Bitcoin’s historical prices divided into color zones. Each shade corresponds to a specific market condition:

From dark blue (extreme undervaluation) through a spectrum of green and yellow shades (fair value) to dark red (maximum overvaluation). The chart uses a logarithmic scale, which helps smooth out sharp jumps and show real long-term trends rather than short-term market noise.

The tool appeared in 2014 thanks to Reddit user azop. But it became truly popular after an update in 2019, when Rohmeo created an improved version (V2) with a refined mathematical model. Today, the rainbow chart is available on many platforms — from BlockchainCenter to TradingView.

Practical application in trading

Reading the chart begins with determining Bitcoin’s current price position on the scale. Hover your cursor over the current price — and it’s immediately clear which color range it falls into.

Cool colors (blue and green) indicate potential undervaluation. These are accumulation zones where experienced traders consider buying for long-term holding.

Yellow range signals fair value — the market is in balance, and positions can be maintained.

Warm colors (orange and red) are caution signals. These are overheated zones where it may be time to take profits or limit risks.

However, relying solely on the rainbow chart would be a mistake. Savvy traders combine it with other tools: check trading volumes, analyze RSI and MACD, study the Stock-to-Flow model for long-term forecasts. Such a comprehensive approach provides a much more reliable picture.

Connection with key market events

Particularly interesting is the correlation between the rainbow chart and Bitcoin halving events. Every four years, an event occurs that halves miners’ rewards, creating a supply deficit. Historically, around the halving, Bitcoin’s price tends to be in the lower (blue or green) ranges on the chart.

After the halving, when new supply becomes more limited, demand increases, and the price often moves upward — transitioning into higher ranges on the chart. This creates a clear pattern that can be used to understand market cycles.

Main advantages of the tool

The rainbow price chart is valued for its simplicity and informativeness. Visual clarity allows you to instantly understand the market condition at a glance. Beginners appreciate that no complex calculations are needed — everything is obvious from the color scheme.

The tool provides a long-term perspective. You see the full evolution of Bitcoin from its origins to today, understanding how the asset behaves at different stages of development. It’s an excellent educational resource for studying cryptocurrency market cycles.

Important limitations

Do not forget the drawbacks. The chart is based on historical data, so it does not guarantee accurate predictions of the future. Sudden events, “black swans,” geopolitical shocks — all of these can disrupt the historical pattern.

The boundary between color bands is not strictly fixed. Different models may use slightly different thresholds, leading to subjective interpretations. Moreover, the chart is not suitable for short-term trading — it smooths out short-term volatility, hiding daily and weekly fluctuations.

As the Bitcoin market matures, past trends may change. The model periodically requires adjustments to stay relevant in changing conditions.

How to properly use the tool

It is recommended to perceive the rainbow chart as a guide, not a crystal ball. View it in the context of other analytical data — this adds depth to your analysis.

Compare the current range with historical cycles. See how Bitcoin behaved when it was in the same price zone previously. Look for patterns that can help better predict the asset’s behavior.

Combine the tool with technical analysis: study support and resistance levels, analyze trends, check volumes. Such a multi-faceted approach significantly improves the quality of trading decisions.

The Bitcoin rainbow chart is a powerful tool in an analyst’s arsenal, but only when combined with other market research methods. Use it for long-term planning, educational purposes, and expanding your understanding of how the cryptocurrency market develops.