The core logic
Selling on an exchange requires having coins there, so large inflows put supply within one decision of the book, and sustained outflows move it toward cold storage — intention, read from logistics. It is the on-chain cousin of the positioning reads this map runs on funding and open interest: not what the crowd says, what it is physically set up to do.
The noise floor
Venues shuffle their own wallets constantly — consolidations, cold-storage rotations, internal transfers dwarfing customer flow — and a mislabeled venue wallet fabricates a whale. Every naive flow alert has fired on plumbing; the discipline is entity labeling, netting over windows, and ignoring any single transaction however large.
Where it earns its keep
The read is strongest at extremes and around events: sustained multi-week outflow regimes accompany accumulation phases, heavy inflows cluster before distribution, and a known overhang — an estate, a treasury, an unlock recipient — moving coins venue-ward is the closest thing on-chain data offers to a pre-announcement of supply.
Reading it
Net flows over days, not transactions over minutes; trust labeled entities only; and pair the read with the derivatives tape — supply arriving while leverage is already crowded long is the combination worth acting on.