Net Flows
Overview
IntoTheBlock has built a proprietary machine learning powered classifier to identify addresses of top centralized exchanges, including their deposit addresses, withdrawal addresses, hot wallets and cold wallets. With this classifier, IntoTheBlock can measure the net volume flowing into exchanges. Through the following formula IntoTheBlock calculates Net Flows:
Net Flows = Inflow Volume - Outflow Volume
💡 How can I use it?
The Net Flows indicator highlights trends of traders sending money in and out of exchanges. Recall that Net Flows are positive when more funds are entering than leaving exchanges. Therefore, we observe that positive Net Flows tend to coincide with periods following large increases in price (like LINK when it tripled between April and July) or confirmation of down-trends (as seen with LINK in late August).
Conversely, Net Flows are negative when a greater volume is being withdrawn from exchanges. This could be seen as a sign of accumulation (LINK in early August) or addresses buying back following large declines (LINK in early September).
While Net Flows also affect large cap crypto-assets, smaller cap tokens are more susceptible to large changes in prices deriving from exchange flows. This is simply a result of smaller caps requiring less capital in order to make market-moving trades. This is worth considering when using the Net Flows indicator to trade.
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