Exchange In/Outflow & Netflow
Exchange inflow is defined as an amount of coin deposited into the exchange wallets and exchange outflow is defined as an amount of coin withdrawal from the exchange wallets.

Definition

Exchange Inflow is defined as an amount of coin deposited into the exchange wallets.
Metrics
Description
Inflow Total
The total amount of BTC transferred to the exchange.
Inflow Mean
The mean amount of BTC per transaction sent to the exchange.
Inflow Top10
The total BTC amount of the top 10 transactions inflow to the exchange.
Inflow Mean(MA7)
The 7 days moving average of mean BTC inflow to the exchange.
Exchange Outflow is defined as an amount of coin withdrawal from the exchange wallets
Metrics
Description
Outflow Total
The total amount of BTC transferred from the exchange.
Outflow Mean
The mean amount of BTC per transaction sent from the exchange.
Outflow Top10
The total BTC amount of the top 10 transactions outflow from the exchange.
Outflow Mean(MA7)
The 7 days moving average of mean BTC outflow from the exchange.
Exchange Netflow is the difference between BTC flowing into and out of the exchange. (Inflow - Outflow = Netflow)
The mean value is the In/Outflow Total divided by the Transactions Count In/Outflow.

Interpretation

By value itself

  • Increase of inflow to exchanges is mostly a Bearish sign
  • Increase of outflow from exchanges is mostly a Bullish sign

By examining trend

  • Increasing inflow/outflow indicates possible volatility and helps predict market trend

Explanation

About Inflow

Considering the fact that moving coins costs fees, wallets outside from exchange send their coins to the exchanges for three possible reasons.

1) To sell their coins - Bearish

In the case of inflow to spot exchange, it is highly likely that investors are sending BTC for selling. This action includes retail buyers' coins moving into the exchange but also the result of custody services provided by institutional buyers. Instead of storing them in cold storage, moving into exchange wallets indicate the urge to turn coins into fiat or stablecoins.
This reason of action mostly leads to the price drop which indicates a bearish sign.

2) To trade in derivative market - volatility risk

The purpose for sending coins to derivative market wallets indicates that more trades will be happening on the derivative market. This could possibly lead to increased volatility risk as a result of increased trading activity, investors looking to take profits, and/or to rebalance to de-risk their investment portfolios. This type of action has difficulty in deciding the effect on price since coins in the derivative market could be used to open both long/short positions.
Instead, it should be interpreted as increased volatility risk.

3) To use services in the exchanges - neutral

Sometimes, investors send their coins to exchange for the purposes of staking, airdrop, and to fit the requirement for IEO. In this case, there is no indication to infer on both price or volatility. However, in the case of an airdrop, indicators such as funding rate and open interest should be considered due to price hedge motivation.
This reason of action should be interpreted as neutral.

About Outflow

Considering the fact that moving coins cost fees, wallets outside from exchanges send their coins from the exchanges for two possible scenarios.

1) Moving coins after the purchase- Bullish

In the case of outflow from the spot exchange, it is highly likely that investors are sending BTC outside for storage. Instead of letting their coins sit in the exchange wallets, investors are pulling out their coins from exchange to hold their coins for security and long-term hold. This action includes retail buyers' coins moving out of the exchange but also the result of custody services provided by institutional buyers.
This reason of action mostly leads to the price rise which indicates a bullish sign.

2) Moving coins that are no longer needed for derivative trades

The purpose for sending coins from derivative market wallets indicates that fewer trades will be happening on the derivative market. This could be the result of trading activity where investors take profits or rebalance to de-risk their investment portfolios.

By examining trend in values

Indicating the Level of Exchange Activity

A positive trend of inflow or outflow to exchanges can indicate an increase in overall exchange activity, meaning more and more users actively use the exchange for trading. This possibly means that the sentiment of traders is in the bullish moment. According to this interpretation, the other way around means bearish sentiment.

Predicting Volatility

BTC In/Outflow Mean(MA7) explain the strength of previous volatility in price, which possibly means the current position might be local tops or bottoms. This is because the large portion of inflows is based on transactions among exchanges, where the analysis is done by the CryptoQuant research team, and this phenomenon can be explained by the results of arbitrage strategies.

Predicting Market Trend (Bullish or Bearish)

Based on the "Exchange Activity" interpretation, we can see the trend of inflow to all exchanges and outflow from all exchanges by applying a moving average to data, which is one of the well-known technical indicators for having data's historical trend. We also apply multiple moving averages to see exact inflection points, called moving average ribbon.
As you can see below, both inflow and outflow trends roughly well-explain bullish or bearish sentiments for the past 3 years where a meaningful number of exchanges have been activated, which supports "Exchange Activity" interpretation.

Predicting volatility with BTC In/Outflow Mean(MA7)

By looking at BTC Inflow Mean(MA7)'s degree of where local tops are located, we can estimate how much the current location is a local top (in red circle) or bottom (in green circle). If your BTC Inflow Mean(MA7) value is in a similar position, you need to check other complementary indicators telling you selling or buying pressure to determine the current price position is in the local top or bottom.
By looking at BTC Outflow Mean(MA7)'s degree of where local tops are located, we can estimate how much the current location is a local top (in red circle) or bottom (in green circle). If your BTC Outflow Mean(MA7) value is in a similar position, you need to check other complementary indicators telling you selling or buying pressure to determine the current price position is in the local top or bottom.

Link to Our Data

Last modified 15d ago