🌈BTC escape top indicator: Bitcoin rainbow chart indicator update
Currently it is still in the bull market equilibrium period, it is recommended to continue holding
Indicator ≥5 escape top
Indicator ≤2 bottom fishing
Currently = 3
1/Historical accuracy: Bitcoin rainbow chart has successfully reflected the fluctuation cycle of Bitcoin price many times in history. For example, in 2017, BTC price was close to the upper side for a total of 52 days. In 2021, it touched the upper side for 86 days. Both times were at the peak of the bull market. The bottom fishing signal is also very accurate, and it has hit many times in history.
2/Calculation logic: Bitcoin rainbow chart is based on the central logarithmic regression line, which was originally proposed by Trolololo in 2014 and has been recalibrated over the years to adapt to Bitcoin's changing price data. Here is an early version of the regression formula from 2017:
Price of Bitcoin = 10^(2.66167155005961 * ln(number of days since January 9, 2009) - 17.9183761889864)
This formula captures the long-term price trend of Bitcoin, using logarithmic regression to estimate its future value by taking into account its historical growth pattern.
3/ How does the Bitcoin Rainbow Chart work?
Regression Analysis
This chart uses the concept of regression, a statistical method used to model the relationship between a dependent variable (Bitcoin price) and an independent variable (time). This allows us to derive an estimated price of Bitcoin on any given date based on the number of days since Bitcoin was launched. Logarithmic regression models help predict how Bitcoin's price will evolve, smoothing out the extreme volatility that typically characterizes short-term fluctuations.
Logarithmic Growth
Exponentially decaying returns: In the early stages, Bitcoin's price rises rapidly, but as Bitcoin matures, returns begin to slow - a typical behavior for many financial assets. The logarithmic scale reflects this diminishing returns.
Scale Invariance: The chart uses a log-linear scale, tracking time linearly and price logarithmically. This makes a major move in price, such as going from $100 to $1,000 (10x), visually equivalent to going from $10,000 to $100,000.
Fitting to Historical Data
Empirical Calibration: The formula involves two constants:
The multiplication factor is 2.66167155005961
The subtraction factor is -17.9183761889864
These values were derived by fitting the model to historical Bitcoin price data.
