The Rainbow Chart plots Bitcoin's price on a logarithmic scale against a long-term power-law growth curve, split into coloured bands from deep discount (blue) to overheated (red). It's more of an intuitive visual framing than a precise trading tool — the same power-law math underlies more rigorous indicators like AHR999.
What Is the Rainbow Chart?
The Bitcoin Rainbow Chart takes the full history of Bitcoin's price, plots it on a logarithmic scale, and fits a smooth long-term trend line through it. Around that trend line, it draws a series of coloured bands — like a heat map — showing how far price has historically strayed above or below the trend at any given point.
Its appeal is almost entirely about accessibility: you don't need to understand any of the underlying math to read it. Blue bands near the bottom mean "historically cheap." Red bands near the top mean "historically expensive." That's the whole interface.
The Power-Law Foundation
Underneath the colours is a power-law regression — a mathematical curve fit to Bitcoin's price history plotted against time since its genesis block. Power laws are a natural fit for networks that grow through adoption: many technologies (and network-effect-driven systems generally) show growth that looks roughly linear on a log-log scale, which is exactly the shape a power law produces.
This isn't unique to the Rainbow Chart — the same underlying power-law model is the mathematical basis for AHR999 and the Power Law Deviation indicator. The Rainbow Chart is really the same idea, presented as a visual heat map instead of a single number.
Reading the Bands
| Band Position | Zone | Historical Interpretation |
|---|---|---|
| Bottom bands | Deep Discount | Significantly below the model's long-term trend — often bear-market or early-recovery conditions |
| Middle bands | Fair Value | Close to the long-term trend, no extreme signal |
| Top bands | High Risk | Well above the long-term trend — historically overheated bull-market conditions |
See today's live reading and full band history on our Rainbow Chart page.
Why It Tends to Work
The Rainbow Chart's usefulness comes from the same source as any power-law-based tool: Bitcoin's price history has, so far, tracked a smooth long-term growth curve reasonably well despite extreme short-term volatility. Zooming out on a log scale filters out the day-to-day noise and makes the broader cyclical pattern — repeated overshoots above trend followed by reversion, repeated undershoots followed by recovery — much easier to see than on a linear price chart.
Limitations
It's descriptive, not predictive. The bands describe how price has behaved relative to trend historically. They don't forecast when a band transition will happen next.
The curve is a simplification. A single smooth power-law fit across 15+ years of data is a useful approximation of Bitcoin's growth, not a guaranteed law it must continue to follow as the asset matures and its growth rate naturally slows.
Band width is somewhat arbitrary. Where exactly to draw the lines between "Fair Value" and "High Risk" is a judgment call, calibrated on past cycles — it's a reasonable reference, not a scientifically precise boundary.
How to Use It
The Rainbow Chart is best used as an entry point — a fast, intuitive gut-check on Bitcoin's long-term valuation — rather than a standalone decision tool. Because it shares its mathematical basis with more granular indicators, pairing it with AHR999 or Power Law Deviation gives you the same underlying signal with more precision when you want to act on it rather than just eyeball it.
It's also one of the 21 inputs to our Cycle Compass composite score.
For a broader tour of the other major indicators worth knowing, see our guide to 10 On-Chain Bitcoin Indicators Every Investor Should Know.