Summary: The Ethereum Rainbow Chart, which traces its roots back to the creation of ETH in 2014, is a logarithmic regression model used by investors to determine if the price of Ethereum is overbought or oversold, based on past price trends. While it shares similarities with the well-known BTC Rainbow Chart, the Ethereum Rainbow Chart is considered less reliable due to its shorter price history.
What is the Ethereum Rainbow Chart?
In short, the Ethereum Rainbow Chart is a long-term valuation model for the Ethereum (ETH) network. It applies to all networks that follow the principle of Moore's Law. The model effectively uses a logarithmic growth curve to help forecast the future valuation and direction of the Ethereum price, comparing its relative strength to previous points in history.
How do I read the ETH Rainbow Chart?
While logarithmic regression models sound complicated, the ETH Rainbow Chart does a great job of simplifying the underlying message of the data. At a high level, the 9 different ranges in the model mean the following for the price of Ethereum:
- Dark red – in the bubble zone
- Red – historically overbought, should consider selling
- Dark Orange – investors are FOMOing
- Orange – becoming overbought
- Yellow – HODL, meaning it is neutral
- Light green – leaving the accumulation zone (to the upside)
- Green – in an accumulation zone
- Blue Green – buy zone, market is fearful
- Light purple – drastically oversold and a great buying opportunity
Who created the ETH Rainbow Chart?
The ETH Rainbow Chart was created by an anonymous user on 4chan's /biz/ message board in early 2017. The original post has been deleted, but the chart can still be found on various forums and websites.
What is the difference between the BTC and ETH Rainbow Charts?
The biggest difference between the BTC and ETH Rainbow Charts is the time frame. The BTC Rainbow Chart dates back to 2010, while the ETH Rainbow Chart only goes back to 2014. This means that the ETH Rainbow Chart is much less reliable than the BTC Rainbow Chart.
The Ethereum Rainbow Chart is a useful tool to help inform long-term investors of the overall trend and direction of the ETH price. While it should not be used as a definitive source of investment advice, it can be used to supplement other forms of market analysis.
Additionally, while the chart can be helpful in seeing where ETH has been and where it may be headed, it is important to note that the chart may not always accurately reflect future price movements. As with any investment, investors should do their own research and consult a financial advisor before investing.