Ethereum Rainbow Chart Explained: How Investors Use It To Inform Buy & Sell Decisions

Who doesn’t love a rainbow? From the beginning of time, a rainbow has been a symbol of rebirth and happiness. What better way to represent the end of the storm and dark clouds than a beautiful mosaic of colors on the horizon? In the world of cryptocurrencies, that rainbow symbol has developed an entirely different meaning. Rather than symbolizing the end of a storm and the return of the sun, a crypto rainbow chart is used to explain the historical price action of the crypto asset. The Ethereum rainbow chart is one of the most well-known, but what exactly is it? Let’s break it down below.

The Ethereum rainbow chart is a graphic representation of the price of Ethereum over time, displaying the price of Ethereum over time. The rainbow chart is a logarithmic chart that uses color bands to represent the long-term valuation of Ethereum. Historically, the price of Ethereum has stayed within the rainbow, but this is, in one way, a prediction of what might happen in the future.

Most people are familiar with linear charts, as most of the graphs that we look at every day are linear charts. For instance, if you look at the price of the S&P 500 over a period of time, you will see one trend line fluctuating up and down. Below is an example of a linear chart.

Logarithmic charts, on the other hand, are a method of displaying numerical data over a wide range of values. In many cases, logarithmic charts will be overlayed on a linear chart to express a wider range of values that might reflect different concepts. The Ethereum rainbow chart uses a logarithmic growth curve to explain ETH price movements.

The Ethereum rainbow chart shows a rainbow with the price of Ethereum over time to illustrate periods in which the ETH is both undervalued (buy signals) and overvalued (sell signals). Here is what each color means.

The dark red color at the top of the rainbow symbolizes the price of Ethereum being extremely overvalued. If ETH enters the dark red space, it should be sold immediately.

If ETH enters the red phase of the rainbow, it is probably overvalued and overbought. Traders should consider closing their positions and taking profit anywhere within the reddish realm.

The dark orange color symbolizes a scenario in which buyers have both momentum and power. This means ETH could be overvalued or might be priced correctly, but people are driven by fear of missing out on the bull run.

Light orange symbolizes a balanced market in which the price of Ethereum is probably fair. Whether the price breaks one way or another should be determined by using various forms of technical analysis in addition to the price

If the price action is in the yellow, it means that the market is balanced, with a possible break to the upside. Investors should hold their Ethereum in the yellow.

Light green means that Ethereum can be bought for a good price but not a great price. Traders who might want more exposure to Ethereum but are cautious might look at light green as an entry point.

Green represents a point where the price of Ethereum is a good buying opportunity. Ethereum is now “undervalued,” and buying positions should be considered.

The light blue symbolizes a point in price action where the value of Ethereum is significantly undervalued. Based on the price history of Ethereum, you can see that when the price action dips to the blueish area, it is followed by a significant bull run.

Dark blue is not an area but rather a dark blue line at the end of the rainbow. The dark blue area is a dangerous realm, as it indicates both that ETH might be EXTREMELY undervalued and that Ethereum might be crashing completely out of existence. Traders need to be wary of the dark blue area, as the risk is palpable.

The short answer is NO, absolutely not. Firstly, we would never give investment advice as it pertains to crypto, either at the current price or future prices. Secondly, future price movements are difficult to predict, just as we said in our article about the Bitcoin rainbow chart. A crypto rainbow chart can be used as a visual reference point to track the historical price of Ethereum, not to predict the future. Traders might want to include it as a fraction of the data utilized in their overall technical analysis. Cryptocurrencies and blockchain technology are so new and so volatile that traders should be extremely cautious and look at cryptocurrencies from a macro-viewpoint before they make informed investment decisions.

ETH and BTC (Bitcoin) are the only crypto assets that are considered “blue-chip” by investors. This means that regardless of fluctuations over months and years, they should prove to be valuable over time. We spoke to two heavy hitters in the blockchain industry to get their take on why they feel ETH will be here in the future.

“ETH and the Ethereum virtual machine (EVM) ecosystem are by far the most active in terms of developer count, daily/monthly active wallets, and transaction volume. I see its dominance continue to grow as more layer 2 (increasing scalability), apps (increased functionality), and games (increased fun), launch on it.” – Pelli Wang, co-founder of Bracket Labs Group.

“With time, Bitcoin has become a household name, a commodity that even large asset managers see as a global value store or digital gold,” says Michael Wasyl, also a co-founder of Bracket Labs. “There are more mature financial products and derivatives markets at the largest TradFi exchanges, and investors are less skeptical of BTC since it has had so much staying power.”

“On the other hand, Ethereum is seen as the global settlement layer for on-chain activity, fuel for the ecosystem,” Wasyl continues. “In that sense, investors see ETH as a more speculative asset that represents the promise of the industry and a consistent source of return since it carries a base rate due to staking. That being said, I don’t see ETH eclipsing BTC in overall popularity and market cap any time soon. BTC has all the momentum from the latest ETF filings and, once approved, will draw many more billions into the asset. Historically, BTC has led the market, so we expect that will continue.”

Ethereum is not just a crypto token that is bought in sold. The Ethereum blockchain is the backbone of many other blockchain-related apps and businesses focusing on decentralization. For instance, there is a company called Mantle that allows developers to build decentralized apps on the blockchain. They create a system in which governance and treasury can all be managed by the blockchain. Meso Network is another good example of using the Ethereum blockchain to offer more mainstream services that utilize crypto. They connect bank accounts and credit cards to Web3, similar to the PayPal concept, but with crypto. Remember, Ethereum is not just a cryptocurrency; it’s whole blockchain technology.

If you are interested in investing in crypto, these brokerages offer some options.

The rainbow chart is used to explain the past price trends behind Bitcoin and use it as a possible long-term value. If you’ve heard the term logarithmic regression before, which in blanket terms, is when something increases or decreases rapidly. The Ethereum rainbow chart is a logarithmic regression chart.

Yes, Rainbow is an Ethereum wallet, not to be confused with the ETH rainbow chart, which is what is listed above and tracks historical price data and price movements.