cryptocurrency trading

How to spot pump and dump in cryptocurrency market: Exchange Flow Method?

Daksh Murkute | | |

“Whales are controlling the market.”


This is the fact and there is nothing much you can do about it,


Don’t believe me, just follow the Twitter account of whale alert; you will see that there is billions of dollar moving from one wallet to another in a closed circuit,


Now the question is, can we do something about it? Or is there a way to find out where the whales are and are they are dumping their coins?


Or let me put it this way, is there a way where we can know about future market crashes.


The answer is "Yes",


And in this blog, I'm going to tell you about that,



What is an Exchange?

What are exchange inflow and outflow?

Why this is important?

What is the Exchange Flow Method?

The reason behind this observation



Let’s understand this, a few days back we all know that there was a sentiment of fear, but suddenly a lot of buying happened and BTC pumped almost 2k up,


And all the altcoins in the market have followed that trend,


But, do you really think that pump was organic?


I don’t think so,


The thing is, all the big whales are playing with the market and will continue to do so, whereas normal people like you and me, the majority of us buy at the top and panic sell when the market crashes,


But this will not happen again,


Because I am going to tell you about CryptoQuant's one of the best indicators known as exchange flows, CryptoQuant is one of the best sites to analyze the transaction and data of Bitcoin and Ethereum, and which has some amazing indicators.


But before jumping into the actual method, you have to understand what is an exchange and what exchange inflows and exchange outflows are,


What is an exchange?


What is an exchange?


So I am sure you are all aware of crypto exchanges, like Binance, Kucoin, HitBTC, etc. in simple terms, an exchange is a place where the actual trading happens, where you can buy and sell your coin and NFTs. For example, Binance is an exchange.


Now in these exchanges, there is something called exchange inflows and exchange outflows?


What are exchange inflows and exchange outflows?


What are exchange inflows and exchange outflows?


Exchange inflows: When some amount of coins are deposited into the exchange from external wallets, this process is called exchange inflows and,


Exchange outflows: When some amount of coin is withdrawn from the exchange wallet to some personal wallet; it is called exchange outflows,


Why this is important?


You might wonder why these inflows and outflows are so concerning for us, coins are constantly coming in and out of exchanges.


However, you should be aware that moving coins from or to an exchange wallet costs us fees. and normal people, like you and me, move coins in and out in such small quantities that it has little effect on the equilibrium of the exchanges.


But, when a large number of coins move in and out of exchanges, I'm talking about 500 BTC or 1000 BTC, or 5k eth or 10k eth, it affects the entire market's equilibrium, and that much amount of changes are done by whales.


Also Read: How to choose the best CNFTs?


What is the Exchange flow Method?


let's understand this,


Look at this graph of exchange inflows (you can check this graph on CryptoQuants' official website) where the price is represented by a line chart and the coin inflow is represented by a green color bar.

What is the Exchange flow Method?

courtesy: CryptoQuant


As you can see, whenever a large number of coins are deposited into the exchange, the price drops dramatically, and this has happened the majority of the time,


Now, let’s look at the outflow graph,


This is a graph of exchange outflows, which occur when coins are withdrawn from exchanges.


What is the Exchange flow Method?

courtesy: CryptoQuant


So what happens is, when a whale withdraws a coin from an exchange, it is highly likely that the whale is sending the coin outside of the exchange to cold storage.


Now, why is this happening?


The reason behind this observation


So when whales move their coins from wallet to exchanges, they do it because of two main reasons,


The first reason is that they want to sell their coins.


Whales come into exchanges and sell large amounts of coins, and when a large amount of coins is moved into exchange from cold storage, everyone notices.


This indicates a sense of urgency and sends a signal to the market that whales are converting their respective crypto into fiat or stable coins, which usually results in a price drop, indicating a bearish sign for the market.


The second reason is, sending coins to derivative market wallets,


When a large number of coins enter the derivative market, it indicates that a large number of trades will take place on the derivative market as well, which could indicate an increase in market volatility.


It clearly visible that when whales sell their coin, it indicates a bearish sign in the market, and when they send their coins to the derivative market it indicates volatility in the market,


So, in a nutshell, whenever there is an increase in inflows, we can expect the market to fall.


And if you consider exchange outflow graphs, it shows in the market that, rather than letting their coins sit in exchanges, they are withdrawing them for long-term holding and this action usually results in a price increase, which is a bullish sign for the market.


So, in a nutshell, the exchange outflow chart indicates that it is a bullish sign for the market.




So if you combine both these charts,


You will have a better understanding of where the whales are and where they are dumping their coins, and you will be aware of future market crashes much sooner than anyone else, and that will give you enough time to convert your crypto into stable coins or fiat.


I have explained the fundamentals of the inflow and outflow of the exchanges chart; there are many charts related to inflows and outflows that you can look at for more such indications.



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