Bitcoin Rainbow Chart Hints at Undervalued BTC
The Most Important Points at a Glance
- The Bitcoin Rainbow Chart currently indicates that BTC is “still cheap.”
- Historical patterns suggest that the current cycle has not yet reached its peak.
- Indicators such as the Relative Strength Index (RSI) and Bitcoin dominance differ from previous highs.
- A short-term decline to around $54,000 is possible.
Bitcoin Rainbow Chart: A Buy Signal?
The Bitcoin Rainbow Chart is a logarithmic growth model overlaid with color gradients to visualize long-term trends. Currently, this chart indicates that the Bitcoin price is in a favorable buying zone. In previous cycles, the price reached at least the “Seriously sell!” zone, which has not yet happened this time.
Comparison with Previous Market Cycles
In 2017 and 2021, the Bitcoin market showed clear signs of overheating. In 2017, the weekly RSI remained above 70 for several weeks before the market crashed. In 2021, there was a bearish divergence between price and RSI, after which BTC fell by almost 50%.
The current RSI trend is more similar to the correction in the summer of 2021. The RSI stayed above 70 for six weeks but then quickly dropped below the neutral mark of 50. If this pattern repeats, Bitcoin could temporarily fall to around $54,000.
Bitcoin Dominance on the Rise
Another distinguishing factor from the last cycle is Bitcoin dominance (BTC.D). During the last two market peaks, BTC dominance was at multi-month lows. However, it is currently in an uptrend, reaching levels last seen in March 2021.
This suggests that Bitcoin has not yet reached its cycle peak. Nevertheless, investors should remain cautious, as short-term corrections are still possible.
Our Assessment
Long-term investors may feel reassured by the current data that the Bitcoin market has not yet peaked. The Rainbow Chart continues to signal a buying opportunity, while RSI and dominance indicate that the market is still in a growth phase.
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However, short-term pullbacks are possible, especially if patterns from previous cycles repeat. Those investing for the long term should not be discouraged by short-term fluctuations.
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