Exchange flow is an important on-chain data about tokens that every investor should pay attention to.
Exchange flow refers to the inflow – outflow of a token. Theoretically:
As inflow increases, more tokens will be sent to exchanges for sale, leading to a decrease in token prices.
As outflows increase, more tokens will be withdrawn from exchanges to wallets, leading to increased token prices.
Take FTM as an example. Let's look at the correlation between FTM price and FTM exchange flow data below. If we look at the chart, FTM's price action seems to partially live up to that theory. Of course, predicting the market is never easy, so this indicator cannot be 100% correct.
To calculate the difference between the amount of tokens deposited and withdrawn from the exchange, we have the following formula:
Exchange Netflow = exchange inflow – exchange outflow
Combined with the exchange flow theory above, we have:
Exchange Netflow increased, token price decreased
Exchange Netflow decreased, token price increased
By closely monitoring daily exchange flow data, investors can somewhat predict the price of the token and make investment decisions.
However, analyzing the price of a token requires combining many factors or indicators.