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    Explained: Inflows and outflows on crypto exchanges, how to track them and why

    Explained: Inflows and outflows on crypto exchanges, how to track them and why

    Explained: Inflows and outflows on crypto exchanges, how to track them and why
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    By CNBCTV18.com  IST (Published)

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    Quite simply, inflow refers to the amount of a particular cryptocurrency that has entered the exchange within a given period. And outflow refers to the amount of a cryptocurrency that has left the crypto exchange over a given period.

    Despite its trail-blazing growth and incredible numbers, the cryptocurrency industry is yet in its nascent stage, especially considering its vast potential. Today, these digital assets are largely used as a store of value and an investment vehicle instead of an out-and-out competitor to fiat currencies. Direct transactions of crypto for products and services are few and far between.
    This means that the exchanges still hold significant power, not just as suppliers of crypto but also as indicators of their movement. In this article, we learn about one such indicator related to market movements that crypto exchanges provide — inflows and outflows — what they mean, how to track them and why it is essential to keep a check on them.
    What are inflows and outflows in crypto exchanges?
    Quite simply, inflow refers to the amount of a particular cryptocurrency that has entered the exchange within a given period. And outflow refers to the amount of a cryptocurrency that has left the crypto exchange over a given period.
    For example, if Crypto Exchange A has Bitcoin listed, daily inflow refers to the amount of Bitcoin that has come into the exchange from users in the last 24 hours. Similarly, outflow refers to the number of Bitcoin that have gone out of Exchange A in the previous 24 hours.
    What do inflow and outflow indicate?
    In the larger picture, inflow and outflow indicate whether a market is bullish or bearish. When the inflow is more than the outflow, you know that the market is in a bearish state. When the outflow is more than the inflow, you know the market is on a bull run.
    Inflows happen when users transfer crypto from their offline wallets to exchange provided wallets, perhaps to sell their coins. This generally creates a bearish signal and leads to a price decrease. Outflows happen when coins are withdrawn from exchange wallets, presumably for safekeeping in an offline wallet. This generally creates scarcity in the market and could cause prices to spike.
    Additionally, inflow and outflow for a particular period describe the market sentiments for certain events and activities. For instance, the recent merge of Ethereum was an event that crypto geeks would track through inflow and outflow to understand the market sentiment for that particular event. As such, inflows and outflows give you a micro-level glimpse into the market sentiment on a coin-to-coin basis.
    Inflow and outflow tell you everything that price movements do, but they’re earlier more precise indicators. And as long as crypto exchanges are the centre of crypto transactions, inflow and outflow will continue to be strong indicators tracked by investors and traders.
    How do you get inflow and outflow data?
    Crypto exchanges are not regulated like the stock markets, so they have minimal incentive to provide inflow and outflow data to users directly. Some exchanges readily provide the data to users on their app, and others restrict it to just your transactions.
    The best way to gather inflow and outflow data are third-party data aggregators like CryptoQuant, TokenAnalyst.IO, TheBlockCrypto, Whale Alert, etc. These platforms give you inflow, outflow and tons of other useful information through a user-friendly interface. Of course, this does come at a cost. Perhaps, in the times ahead, we might soon see more crypto exchanges providing inflow and outflow data and more to the public domain. This might begin with a little regulation.
    Conclusion
    Now that we have learnt what inflow and outflow are, we are getting closer to understanding the tricks of the trade when it comes to trading with crypto. You might have noticed that most indicators and signs in the current crypto trading world have trickled down to it from the equities markets - and this is also the case with inflow and outflow.
    Check out our in-depth Market Coverage, Business News & get real-time Stock Market Updates on CNBC-TV18. Also, Watch our channels CNBC-TV18, CNBC Awaaz and CNBC Bajar Live on-the-go!
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