Hierarchical Aggregation

Hierarchical aggregation is a clustering method that builds a tree-like structure of nested groups by either merging smaller clusters or splitting larger ones. This approach is useful in cryptocurrency analysis for understanding the nested nature of wallets, where multiple sub-wallets may be managed by a single master entity.

It allows analysts to view data at different levels of granularity, from individual addresses to entire exchange portfolios. This method provides a more nuanced view than flat clustering, as it reveals the relationships between clusters themselves.

It is particularly effective for mapping complex institutional setups where assets are moved through various intermediate layers. By observing the hierarchy, researchers can better infer the operational structure of a large market participant.

This technique is essential for identifying the flow of funds from cold storage to hot wallets and vice versa. It aids in creating a more accurate picture of the overall distribution of assets and potential market impact.