Bitcoin has been around for over a decade now. It’s already completely changed the world by carving out a space within global financial markets where deflationary economics reign, and where finance is conducted by anonymous peers on a decentralized network.
It has also made many investors fantastic returns on their investments, and others abysmal losses. That’s because this emerging financial technology is such a highly liquid, speculative investment vehicle that its market price is very unstable, characterized by high volatility at any time scale you view it. That’s where the bitcoin rainbow charts come in.
Bitcoin rainbow charts are a handy tool that started making the rounds in 2022. You can find them scattered about on Crypto Twitter, Crypto Reddit, Discord, Telegram, and other social media networks that are popular haunts for the crypto community to gather.
Anywhere crypto enthusiasts share information and ideas related to Bitcoin, cryptocurrencies, P2P technology, and investing in digital assets, you might run into a post that references the bitcoin rainbow chart. It is essentially a quick and easy guide for when to buy, when to hold, and when to sell bitcoin to maximize profits and minimize losses.
Here’s why that’s important:
Bitcoin: A Historically High ROI Investment
Bitcoin is the world’s first cryptocurrency. Its mysterious, pseudonymous inventor, Satoshi Nakamoto, launched the new asset class in January 2009, when he used his computer to mine the very first Bitcoin block, the “Genesis block.”
Unlike traditional fiat currencies issued by central banks, Bitcoin is a cash savings and payment system operated by a decentralized, peer-to-peer network.
Anyone can join and help maintain the Bitcoin blockchain with a computer and Internet connection. They don’t need to ask anyone permission, sign up, apply, or give out their personal, identifying information to use Bitcoin either as a miner or a client.
The world’s first cryptocurrency first began trading on liquid exchange markets in 2010. The most prominent early exchange was Mt. Gox. That platform actually got its start as an exchange for the customizable card game, “Magic The Gathering.”
Seeing the potential for earning massive profits by offering a digital exchange for bitcoin to fiat, the owner converted the platform over to service bitcoin to dollar trading.
Others soon followed suit. In 2011, bitcoin, which had previously traded for less than a penny or mere pennies for one coin, crossed the $1 per 1 BTC threshold.
Why Bitcoin Rainbow Charts Are Important: Wildly Volatile Market Price Action for BTC
From 2010 until the spectacular bitcoin bull run of 2017, the market for BTC skyrocketed from less than a penny per coin to $20,000 for 1 BTC by Christmas Day of 2017.
That made investing in bitcoin in 2010 or before, and holding until December 2017, the most profitable investment in the history of return on investment accounting by far!
Google searches for “bitcoin” and related bitcoin queries surged that year. People who previously had no interest in peer-to-peer technology or exotic financial instruments piled in to invest in Bitcoin as FOMO (fear of missing out) raged through the public consciousness.
As with all market mania-driven, speculative bubbles, predicated on fear of missing out, and hopes to get rich quick, it all ended in a drastic market capitulation. The price of bitcoin fell, and fell, and fell over 2018, until it finally reached a market bottom at the $3,200 handle by March 2019.
Since then the price for a coin on liquid exchange markets has risen and fallen wildly. During the worldwide global asset collapse in the wake of the coronavirus pandemic in 2020, the price of bitcoin fell down to the $4000s. Then it entered a bull run that surpassed the previous all time high price of $20,000, and went parabolic to $68,000 by November 2021.
Bottom Line For Crypto Savers, Investors, And Traders: Is The Bitcoin Rainbow Chart Reliable?
In short: It has historically been very reliable. If you consult the historical bitcoin rainbow charts, you’ll find they display the historical price of bitcoin on a logarithmic chart. If you don’t know what “logarithmic” means, and find it to be an intimidating mathematical term, do not panic.
This is easy to understand and not rocket science:
The logarithmic chart simply shows you the range of $1 – $10 per BTC in the same amount of vertical space on your screen, as the $10 – $100 range above it (squeezing the $10 – $100 range down to the same length as the range below it), then shows you the $100 – $1000 range in the same amount of space again, an so on for each multiple of ten.
That flattens out the price chart so that you can understand the information more easily and see it without needing a very tall screen because of how dramatically the price of bitcoin has risen in a relatively short amount of time.
Now the legend on the chart indicates, based simply on technical analysis (what the market price has been up to recently), when to buy, sell, or hold. Historically, following the bitcoin rainbow chart would help maximize profits and minimize losses.
Of course any professional will tell you that past results do not guarantee future performance. But professionals also use historical patterns to make best guesses at the future.