Live Bitcoin rainbow chart
This Bitcoin Rainbow chart is created for you, to determine what to do in this current bear market. You can use it to find the current possible lower bound and decide when it's best to buy more Bitcoin. In this post, we will also talk about how you can use the Rainbow chart to give an educated guess about the current bottom and the future price at the next Bitcoin halving.
What is a Bitcoin rainbow chart?
The Bitcoin Rainbow chart can be used to view how historic price levels followed the logarithmic curves on upper and lower bounds. The top colors of the Rainbow chart will show the upper bound of the price and the lower, blue colors will show the price of the lower bounds.
The fair value of Bitcoin
One way to use the logarithmic regression curves is to find the "Fair value" of bitcoin. The fair value is the natural regression of the price of an asset, stock, or crypto coin. It's hard to determine the exact Fair value of Bitcoin, but it is possible to use the lower levels of the Rainbow chart as some bounds.
As you can see in the chart, Bitcoin is currently trading in the lower bounds of the Rainbow chart, and one could argue it's currently in the "Fair value" price range.
Finding the current possible bottom of Bitcoin
If we look at the historic prices of Bitcoin along with the lower bounds of the Rainbow chart, we can see that it never really dipped below the lowest bound. In 2020 we had the price briefly drop below the lowest bound of the Rainbow, only for it to recover quickly and start the big price bull rally of 2021.
If we use the current bounds of the Rainbow chart, we can expect the price not to go below $16.500. The recent low of Bitcoin was recorded at $17.622 according to coinmarketcap.com. So it's very well possible that we have almost reached the bottom.
Correlation of Fair value and Bitcoin halving
Bitcoin halving occurs when the rewards of mining bitcoin are cut in half. This means that the rewards of miners are reduced and they would only keep their USD earnings if the price of Bitcoin increases. It also means that the rate of new Bitcoin entering the market is reduced, which slows down the inflation of Bitcoin itself.
The current estimated date for the next Bitcoin halving is around April 2, 2024. But what does that mean for the expected price of Bitcoin?
If we look at the historic Bitcoin halvings on the weekly charts, we see that the price of Bitcoin was trading at Fair value prices at the time of the halving. For the next halving that would bring the price to around $35.000 to $50.000.
The months after the Bitcoin halving are usually very bullish and so far the price has always traded above the last halving price. Meaning if you only bought around the Bitcoin halving, you would be in profit.
How reliable is the Rainbow chart
The reliability of the Rainbow chart highly depends on how you use it. All rainbow charts and logarithmic regression charts are refitted based on the most recent data. However the regression lines are usually drawn on high timeframes, so they don't need to be adjusted often. As the Rainbow chart is also very wide and can range from bands that are between €10.000 and $165.000, it's impossible to use these charts on short-term predictions.
The lines in a rainbow chart or logarithmic regression chart, are drawn based on the lower and upper prices of the markets. This means that if the price is trading in the middle of these bounds, it becomes very unreliable. But as we are currently trading in the lower bounds of the Rainbow chart, it will give you some statistical information about the possible bottom price of Bitcoin.
Can a rainbow chart be used in different markets as well?
Rainbow charts or logarithmic regression bands can be drawn in any market given you have enough data. The price of the assets needs to have grown to an exponential level to be able to draw the logarithmic regression bands.
As we have seen in this post, the Rainbow chart or logarithmic regression can be used to make an educated guess about the current bottom price of Bitcoin and also the future price of Bitcoin at the next halving in 2024.
We can see that the current price of $20.000 is still good if we expect the price to go up to $35.000 at the next halving. So if you are a long-term believer in Bitcoin, you don't have to worry about the current price of Bitcoin and maybe you can decide to increase your bitcoin position. But that is of course up to you to decide.
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