About Bitcoin Price Prediction Models
Rainbow Chart
The Bitcoin Rainbow Chart is a logarithmic price visualization tool created by Trolololo in 2014 and refined by the community. It divides Bitcoin's price history into color-coded bands:
- Blue (Fire Sale): Historically the best buying opportunity
- Green (Accumulate): Good time to accumulate Bitcoin
- Yellow (HODL): Fair value range, hold your position
- Orange (FOMO): Consider taking some profits
- Red (Bubble): Historically overbought territory
Stock-to-Flow (S2F) Model
The Stock-to-Flow model, popularized by analyst PlanB in 2019, measures Bitcoin's scarcity by comparing existing supply to new production. The model predicts price based on the formula:
Price = 0.159 × (Stock ÷ Flow)^3.36
With each halving reducing Bitcoin's flow, the S2F ratio increases, theoretically driving price higher. After the 2024 halving, Bitcoin's S2F exceeded 120, surpassing gold's scarcity.
Power Law Model
The Power Law model uses logarithmic regression to identify Bitcoin's long-term fair value trajectory. It calculates:
- Fair Value: The center line representing expected price
- Support: Lower bound that has historically held during bear markets
The model is based on the observation that Bitcoin's price follows a power-law relationship with time since the genesis block.