Bitcoin rainbow chart
Stock investors like to judge whether a stock is dear or cheap with channels and moving averages. Bitcoin has no earnings report, but over more than a decade its price has traced a remarkably steady long-term path. The rainbow chart draws that path as a logarithmic-regression band — from the deep-blue "Fire Sale" zone to the red "bubble" — so you can see which band today's price sits in.
What the rainbow chart is actually drawing
Plot Bitcoin's price history on a logarithmic scale (where each step up the axis is ten times, not a fixed addition) and you'll find it roughly follows a straight line upward. The rainbow chart wraps a set of parallel coloured bands around that regression line: the middle is the regression midline, and going up gets ever "dearer" (green → yellow → orange → red, up to bubble), while going down gets ever "cheaper" (light blue → deep blue, down to the Fire Sale zone). The midline formula this page uses is the one common in the field: with the days d since the genesis date, 3 January 2009, price = 10^(2.9065 × ln(d) − 19.493), then shifted up and down in log space to draw nine bands.
Why is it useful for a stock investor? Because it turns "dear or cheap" from an absolute price into a position relative to the long-term path — just as you wouldn't look at a share price alone, but at where it sits in its channel. But hold three things firmly in mind: one, this is a fit after the fact, looking back at history with today's data, so it's flattering by nature; two, the coefficients in the formula are chosen by hand, and another set gives another chart; three, the model assumes the past growth pattern continues, which nobody can guarantee. It's good for cooling the mood, not for calling bottoms and tops. Pair it with the Fear & Greed Index for sentiment and the position calculator for risk, and it's a steadier combination. For further reading, see dollar-cost averaging into Bitcoin.
One thing to keep in mind when reading the chart: the regression midline keeps rising over time, so the current price sitting in the bands below the midline does not mean "severely undervalued, buy with your eyes closed." It's best treated only as a rough sense of position: a little more patience in the deep- and light-blue bands, a little more caution in the orange and red — that's all, never as a buy/sell signal.