Exchange Flows - Signals of Buying and Selling
Why Exchange Flows Matter
To sell coins, you need to deposit them to an exchange, and to hold long-term, you withdraw them from the exchange to a personal wallet. This simple principle is at the heart of exchange flow analysis.
Exchange Inflow: Coins entering exchange wallets. Could be for selling or derivatives collateral purposes.
Exchange Outflow: Coins leaving exchange wallets. Movement to personal wallets suggests long-term holding (HODL) intentions.
Exchange flow analysis is the on-chain indicator that most directly shows "whether market participants are trying to sell or accumulate."
Exchange Inflow
Meaning
Coins being deposited to an exchange is fundamentally an action that increases selling likelihood. Large deposits in particular are a warning signal that selling pressure may increase in the market.
Interpretation Considerations
Not all exchange deposits mean selling.
| Deposit Purpose | Sell Signal? |
|---|---|
| Immediate sale | Strong sell signal |
| Derivatives collateral | Not selling (leverage purpose) |
| Staking | Not selling (yield purpose) |
| Inter-exchange transfer | Neutral (reallocation) |
However, the pattern of large deposits followed by price drops has been repeatedly observed, so surges in deposits still require caution.
Exchange Outflow
Meaning
Coins leaving exchanges is fundamentally an accumulation signal. Taking coins off an exchange and moving them to a personal wallet means there's no intention to sell immediately.
Interpreting Large Withdrawals
- Institutional custody movement: When institutions move to cold storage after purchasing. Strong accumulation signal.
- Personal self-custody: Moving to personal wallets following the "Not your keys, not your coins" philosophy.
- Movement to DeFi: For Ethereum, withdrawing for staking or liquidity provision.
Net Flow
Definition
Net Flow = Exchange Inflow - Exchange Outflow
- Positive (+): Deposits exceed withdrawals. Net inflow. Potential increase in selling pressure.
- Negative (-): Withdrawals exceed deposits. Net outflow. Accumulation signal.
Net Flow and Price
| Net Flow | Price | Interpretation |
|---|---|---|
| Positive (net inflow) | Falling | Selling pressure materializing |
| Positive (net inflow) | Rising | Profit-taking supply possible, caution needed |
| Negative (net outflow) | Rising | Healthy rally. Buyers are accumulating coins |
| Negative (net outflow) | Falling | Buying the dip. Possible smart money accumulation |
The most bullish combination is "net outflow + falling price". It means someone is steadily buying even as prices decline.
Differences by Coin
Bitcoin Exchange Flows
Bitcoin has the longest historical data and the highest reliability for exchange flow analysis.
- After the March 2020 COVID crash: Exchange reserves have been on a continuous declining trend → Long-term accumulation signal
- Near price tops: Patterns of exchange deposit surges repeatedly observed
Ethereum Exchange Flows
Ethereum requires more complex interpretation due to factors like DeFi and staking.
- Exchange withdrawals may not necessarily mean HODL (movement to DeFi protocols)
- ETH 2.0 staking withdrawals are long-term lockups, so they're a strong supply reduction signal
- ERC-20 token flows should also be considered
Altcoins
Small altcoins may have less accurate exchange wallet identification, so data reliability is lower. It's safer to focus on BTC and ETH exchange flows.
Analysis by Exchange
While the total flow across all exchanges is important, looking at individual exchange flows can provide additional information.
Major Exchange Characteristics
| Exchange | Primary User Base | Flow Interpretation Notes |
|---|---|---|
| Binance | Largest global | High representation of overall market |
| Coinbase | US/Institutional | Proxy for institutional buying |
| Kraken | US/EU | Institutional-friendly |
| OKX/Bybit | Asia/Traders | Includes derivatives collateral flows |
Large withdrawals from Coinbase are particularly noteworthy as they suggest potential buying by US institutional investors.
Practical Application
Sell Warning Signals
Caution for increased selling pressure when the following conditions are met simultaneously:
- Net inflow to exchanges for several consecutive days
- Inflow volume is 2x or more of the 30-day average
- Increasing large transactions toward exchanges in whale tracking
- RSI in overbought territory
Accumulation Signals
High probability of smart money accumulation when the following conditions are met simultaneously:
- Sustained net outflow from exchanges
- Price is sideways or declining
- Exchange reserves in long-term decline
- MVRV below 1.0
Limitations and Cautions
Exchange Wallet Identification Accuracy
Different on-chain analysis platforms identify exchange wallets to different extents. Even for the same exchange, figures can vary depending on how far they track hot wallets, cold wallets, and deposit addresses.
Derivatives Impact
Exchange deposits could be futures collateral rather than spot selling. Particularly for exchanges like Binance and OKX where spot and derivatives accounts are linked, interpretation requires caution.
Distortion by Single Large Transactions
A single whale transaction can significantly distort daily statistics. Observing trends with 7-day or 30-day moving averages rather than daily data is more stable.
Summary
Exchange flows are the on-chain indicator that most directly shows the buying and selling intentions of market participants. Net inflow signals selling pressure, net outflow signals accumulation, and combining with price helps determine market conditions. Focus on BTC and ETH exchange flows, and observing trends rather than single days is more effective.
Next article: Exchange Reserves - The Barometer of Supply