Whether you like it or not, the prices of all the cryptocurrencies in the market are linked directly to the price of Bitcoin. All of us have been looking forward to the day when the price of Ethereum and thousands of other altcoins decouples from Bitcoin price but that day is not in sight in the near future. Thus, it becomes of paramount importance to understand the price movement for BTC to make a well-informed investment strategy in the crypto market. This is because a well-timed investment or trade in the crypto market can be a life changer as has been seen in the case of thousands of people globally. The Bitcoin rainbow chart is one of the best parameters to do so. Therefore, in this article, we will tell you how accurate is the BTC rainbow chart. Moreover, we will tell you how to read it and make the best out of the once-in-a-lifetime opportunity that crypto markets present.
What Is The Bitcoin Rainbow Chart
The Bitcoin rainbow chart is a mathematical model based on logarithmic regression and maps the price of Bitcoin historically to give an insight into what the price movement could be in the future. If that sounds too technical then worry not and read along. In simple words, the BTC rainbow chart is the map of the price movement of Bitcoin since its launch and it is color-coded in order to give us information about its bullish and bearish phases.
The BTC rainbow chart is divided into nine different colors and each color signifies a different scenario in BTC prices as shown down below in the chart from CoinStats with each color signifying:
- Dark Red: Maximum Bubble Territory and the price will move down from here.
- Red: Sell, Seriously SELL, the time to sell is now.
- Dark Orange: FOMO intensifies and retail moves in.
- Orange: Is BTC a Bubble?
- Yellow: The perfect zone to HODL BTC.
- Light Green: Still cheap and you can buy BTC.
- Green: Cheap accumulate buy zone.
- Light Blue: Buy zone for BTC.
- Blue: The BTC price has bottomed out and it’s a FIRE SALE.
Bitcoin Rainbow Chart from CoinStats
As you can see from the chart when the price is in dark red and red zones, it is the moment when the price of BTC has reached its peak for that cycle and is primed for a downward movement in the coming days, weeks, and months. Thus, whenever you are trying to look at Bitcoin rainbow charts and the price is in any of the red regions, it is considered a good time to take profits.
On the flip side, when the price reaches around light and dark blue zones, it has historically been an indicator that the BTC price has bottomed out for that cycle and would start an upward movement in the near future. This is the perfect time to enter new positions in the market or even the dollar cost average of your BTC and other crypto holdings.
How Accurate Is The BTC Rainbow Chart
It should be kept in mind that there is no indicator, technical analysis, price analysis, etc., in the world that can predict the price movement for any kind of asset in the world. But they come in handy and have proven to be profitable in general. If you follow and understand technical or price analysis, rainbow charts, etc. the chances are that majority of your trades would prove to be profitable.
Thus the Bitcoin rainbow chart becomes of importance because historically no matter what has been witnessed by the world, including a pandemic, wars, etc. the price of BTC has not deviated out of the chart. The different colored bands in the BTC rainbow chart and the price actions have held up for the past decade or more and if you made your investment decision based on it, you would have been in profit.
So, while the prices of cryptocurrencies including BTC are highly volatile and we have been going through a bear market for the past 10 months or so, the rainbow chart shows us that it is the right time to buy. It should however be kept in mind that nothing in this article is a piece of financial advice and you should always make your own decisions about what you want to do with your money.
The Bitcoin rainbow charts have proven to be a very good indicator of price action for BTC and the entire crypto market by association. It should however be understood that the rainbow charts should not be considered when day trading cryptocurrencies. The Bitcoin rainbow charts are accurate only when it comes to long-term investment plans. In case you are interested in day trading and other forms of trading like derivatives and futures, it is better to rely on technical and price analysis.