A roughly 50% decline from recent highs has driven bitcoin into a zone historically tied to extreme bearish sentiment, reigniting debate among market analysts.
Bitcoin has now fallen beneath the lowest band of the widely followed Rainbow Chart for just the second time on record. The long-standing model, created over a decade ago, maps BTC’s price cycles using a logarithmic curve and color-coded sentiment ranges.
Some investors view the move as a potential accumulation signal. Analyst CryptoRover pointed to parallels with 2022, when bitcoin last entered this zone near $15,000 before eventually bottoming.
Currently trading around $62,500, bitcoin is down about 50% from its October 2025 all-time high of $126,000. The drop has pushed it below the floor of the modern nine-band Rainbow Chart and into the original model’s purple “Bitcoin Is Dead” zone—a level historically associated with peak fear rather than a literal collapse.
The breach has fueled a broader debate over whether bitcoin is now undervalued or whether the Rainbow Chart itself is losing relevance as institutional participation, ETFs and macro factors increasingly shape the market.
The Rainbow Chart, first introduced in 2014 by Reddit user Azop, relies on historical price behavior to illustrate long-term cycles across sentiment-driven bands.
Analysts remain split on its significance. Markus Levin, co-founder of XYO, argued that breaking below a band that held for more than a decade suggests a structural shift in the model, not in bitcoin itself—highlighting how the asset has matured beyond earlier assumptions.
Others take a more cautious view. Ryan Lee, chief analyst at Bitget, said the chart still offers value as a long-term visual reference but should not be treated as predictive, given its reliance on historical data rather than evolving macro and market dynamics.
Emad Shahin, COO of Ethra, echoed that perspective, describing the chart as a sentiment indicator rather than a forecasting tool, noting that such models often fail at key turning points.
Bitcoin’s failure to reach the chart’s upper red bands during its $126,000 peak—and its current drop below the lower boundary—underscores a growing disconnect between price action and traditional valuation models. Other frameworks, including the Stock-to-Flow model, have similarly struggled to accurately predict recent cycles.
Mark Zalan, CEO of GoMining, emphasized that the “Bitcoin Is Dead” zone has historically marked periods of fear and undervaluation, often preceding recoveries rather than signaling permanent decline.
Still, he acknowledged the model’s precision has weakened as market dynamics evolve. The growing influence of institutional capital, ETFs and derivatives has reshaped price discovery, making older models less reliable on their own.
Bitcoin is now trading close to its April 2024 halving level, defying expectations tied to the traditional four-year cycle.
Levin noted that the Rainbow Chart’s assumptions were built for a more retail-driven, less liquid market, whereas today’s bitcoin operates within a far larger and more complex financial system.
Analysts also suggest that rising institutional participation may be reducing the extreme volatility that once defined bitcoin’s cycles.
Lee added that while sentiment appears weak near the bottom of the Rainbow Chart, it does not necessarily point to further steep losses. A move toward the low-$50,000 range remains possible if risk sentiment deteriorates, but the chart itself offers limited guidance on where a definitive bottom might form.
Whether bitcoin moves back within the Rainbow Chart’s historical range or continues trading outside it could determine if the model remains relevant—or becomes another outdated framework in an evolving market.
