The intuition is that you deposit coins to a venue when you intend to sell or to post collateral, and you withdraw them when you intend to hold. Sustained net outflows are therefore read as accumulation and reducing available supply.
The intuition is crude. Deposits also fund derivatives margin, arrive from a custodian rebalancing, or reflect an exchange reorganising its own wallets, and address labelling by analytics firms is imperfect and changes without notice. Single-day spikes are frequently internal transfers mislabelled.
Use it with exchange-reserves, which is the stock to netflow's flow, and treat it as one input among several. The relationship between netflow and subsequent price is weak enough that trading it mechanically has a poor record.
Related: exchange-reserves, onchain-volume, whale-wallet, on-chain