An ETH Rainbow Chart is a long-term valuation model for the Ethereum blockchain network.
The crypto rainbow chart was created in early 2017 by an anonymous crypto-coin user on 4chan’s /biz/ message board.
The original post has been deleted, but the chart can still be found on various forums and websites today.
This unique rainbow chart even applies to every network that follows the principle of Moore’s Law.
The model effectively uses a logarithmic growth curve to forecast the future valuation and direction of the Ethereum price.
It also follows the same process in comparing its relative strength to previous points in history.
The crypto rainbow chart helps investors to find out if a token price is overbought, or oversold based on historical price movements.
It is a replica of the popular BTC Rainbow Chart, but it is less reliable because of the shorter price history.
How to read ETH rainbow chart
Even though the logarithmic regression model may sound confusing to many people, the Ethereum Rainbow Chart does a great job of simplicity.
It helps them to interpret and analyze 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.
The noticeable difference between the Bitcoin and Ethereum Rainbow Charts is the time frame.
The BTC Rainbow Chart dates back to 2010, while that of Ethereum cryptocurrency only goes back to 2014.
It shows that the ETH Rainbow Chart is much less reliable than BTC Rainbow Chart.
Final thoughts
The Ethereum Rainbow Chart is a useful tool to help inform long-term investors of the overall trend and direction of the ETH price.
However, it should not be used as a definitive source of investment advice, but can be used to supplement other forms of market analysis.
Additionally, while it can be helpful in seeing where ETH has been, it’s very important to note that it’s not always accurate in future price movements.
As with any crypto investment, investors should do their own research and consult a financial advisor before investing.
