Currently still in a bull market equilibrium period, it is recommended to continue holding.

  • Indicator ≥ 5: Exit Top

  • Indicator ≤ 2: Buy Bottom

  • Current = 3


1. Historical Accuracy:

  • The Bitcoin Rainbow Chart has historically reflected Bitcoin's price volatility cycles successfully multiple times. For example, in 2017, the price of Bitcoin remained near the upper range for a total of 52 days, and in 2021, it touched the upper range for 86 days. Both instances occurred at the peak of a bull market. Additionally, the rainbow chart has also proven to be very accurate when issuing buy bottom signals, hitting the mark multiple times in history.


2. Calculation Logic:

  • The Bitcoin Rainbow Chart is based on the central logarithmic regression line, initially proposed by Trolololo in 2014, and has been recalibrated over the years to adapt to changes in Bitcoin prices. The regression formula for early versions is as follows:

    \text{Bitcoin Price} = 10^{(2.66167155005961 \cdot \ln(\text{Days since January 9, 2009}) - 17.9183761889864)}

  • This formula captures Bitcoin's long-term price trend by estimating its future value through logarithmic regression, taking into account its historical growth patterns.


3. How does the Bitcoin Rainbow Chart work?

  • Regression Analysis:

    • Use regression analysis to model the relationship between Bitcoin price (dependent variable) and time (independent variable). This method allows for estimating the possible price of Bitcoin on any given date. The logarithmic regression model helps smooth extreme short-term fluctuations, predicting long-term price changes.

  • Logarithmic Growth:

    • Bitcoin's return rate exhibits an exponentially decaying trend over time. In the early stages, prices rise rapidly, but as the market matures, the return rate gradually slows down. The logarithmic scale reflects this diminishing returns pattern.

  • Scale Invariance:

    • The chart adopts a logarithmic linear scale, displaying time linearly and prices logarithmically. Thus, whether the price changes from $100 to $1,000 or from $10,000 to $100,000, the visual change in scale remains equal.

  • Historical Data Fitting:

    • The constants in the formula are derived by fitting to historical price data:

      • Multiplicative Factor: 2.66167155005961

      • Subtractive Coefficient: -17.9183761889864

    • This involves minimizing the difference between predictions and actual prices by adjusting the logarithmic model, which carries a degree of subjectivity.

  • Market Sentiment Reflection:

    • The rainbow chart uses a color-coded band chart, from 'Sell-off' (blue) to 'Maximum Bubble Area' (deep red), intuitively reflecting market sentiment and helping to identify potential buy and sell points.

  • Connecting Bitcoin Rainbow Chart:

    • Center Regression Line: Represents the long-term price trend, derived from historical data fitting.

    • Color Band Multipliers: Create different colored band areas by performing multiplication and division operations on the center line.

    • Market Sentiment: Each band represents different market sentiments, such as 'Buy', 'Sell', 'Bubble'.

    • Visual Logarithmic Linear Scale: Allows exponential growth to display linearly on the chart.

    • Trend Analysis: Helps understand whether the current price deviates from the expected trend.


Note:

  • When using this indicator for exit top or buy bottom decisions, it is recommended to cross-validate with other relevant indicators to enhance the accuracy and reliability of the decision.


#BTC