From Zero to Hero: The Spillover Effect of Meme Coins in the Crypto Assets Market
Recently, a study on the impact of Meme coins on the Crypto Assets market has attracted widespread attention. The study analyzed an event where a well-known political figure issued a Meme coin, revealing the heterogeneous volatility spillover effects driven by market sentiment and fundamentals. This event highlights the increasingly important role of political factors in shaping the Crypto Assets market and investor behavior.
Introduction
The impact of political dynamics on financial markets is increasingly deepening, and the Crypto Assets market has become an important area where politics and finance intersect. The 2024 U.S. presidential election further highlights this relationship, with a Republican candidate shifting to support digital assets, claiming to make the U.S. the "global capital of cryptocurrency" and placing Crypto Assets at the core of their economic agenda.
On January 18, 2025, this candidate issued their official Meme coin on the Solana blockchain. Within 24 hours, the coin's price skyrocketed by 900%, with a trading volume of $18 billion, and a market cap exceeding $4 billion, surpassing the largest Meme coin at the time. The next day, the issuance of another Meme coin related to their family further fueled market speculation. These events are not only speculative in nature but also represent a significant exogenous shock, whose impact extends beyond financial speculation, signaling broader regulatory and political agendas.
This study aims to explore how this event serves as both a political signal and a financial event impacting the Crypto Assets market. The primary focus is on the following three questions:
How does the release of this Meme coin affect the returns and volatility of major Crypto Assets?
Did this event trigger a financial contagion effect within the Crypto Assets market?
Does this impact exhibit heterogeneity, manifesting in different responses from various Crypto Assets based on their technological foundation, use cases, or speculative appeal?
The study employs the Baba-Engle-Kraft-Kroner (BEKK) multivariate Generalized Autoregressive Conditional Heteroskedasticity (MGARCH) model to analyze the top ten crypto assets by market capitalization. The results indicate significant volatility spillover effects among crypto assets following the release of Meme coins, suggesting the presence of financial contagion in the market. Solana and Chainlink recorded the largest gains due to their infrastructural and strategic connections. In contrast, mainstream crypto assets like Bitcoin and Ethereum displayed strong resilience. Conversely, other Meme coins such as Dogecoin and Shiba Inu experienced depreciation, with funds likely shifting towards newly issued Meme coins.
This event occurred in a highly politically polarized environment in the United States, closely related to strong political emotions, which heightened investor sensitivity and exacerbated market reactions. For some investors, this symbolizes a unique speculative opportunity; while others, aware of the political and regulatory risks due to its controversial image, adopt a more cautious stance. This polarization explains the observed high volatility and differentiated market responses.
This study is the first paper analyzing the impact of politically connected tokens on the Crypto Assets market, expanding the understanding of how political narratives influence decentralized financial markets. Unlike previous research that often focused on negative shocks, this study focuses on the impact of positive shocks driven by political signals on the market. The findings provide important references for academia, practitioners, and policymakers, revealing the heterogeneity of market responses to politically connected tokens, and highlighting how asset characteristics influence financial contagion dynamics.
!7384155
Data and Methods
2.1 Data and Sample Selection
The study used per-minute closing median price data for the 10 most representative Crypto Assets among the top 20 by market capitalization, including Bitcoin, Ethereum, Ripple, Solana, Dogecoin, Chainlink, Avalanche, Shiba Inu, Polkadot, and Litecoin. The data comes from a centralized trading platform in the United States, covering the time period from January 11, 2025, to January 25, 2025, encompassing a symmetrical time frame one week before and after the release of the Meme coin.
Research using the following formula to calculate Crypto Assets return rate:
Yield = ln(Pt / Pt-1)
Among them, Pt represents the price of digital assets at time t.
The event time is defined as January 18, 2025, at 2:44 AM Coordinated Universal Time (UTC), which is the official release time of the new U.S. president's official Meme coin announcement. The study calculated the Cumulative Abnormal Returns (CARs) to assess the information cascade effect.
!7384156
2.2 Method
The study uses the BEKK-MGARCH model to analyze the impact of the launch of Meme coins on the Crypto Assets market. The model assumes that the logarithmic returns follow a normal distribution with a mean of zero and a conditional covariance matrix of Ht. The model is set as follows:
[Mathematical formula omitted here]
H represents the unconditional covariance matrix. The parameter matrix satisfies a,b>0, and a+b<1, to ensure the stability and positive definiteness of the model. The study then conducted a contagion effect test, using a relatively strict significance level of α=0.001.
!7384157
Result
3.1 Volatility Spillover Effect
Research results indicate that the interconnection among Crypto Assets significantly strengthened after the event, supporting the hypothesis that "the event triggered a volatility spillover effect." The returns of various Crypto Assets experienced sharp fluctuations during the event, reflecting the systemic impact of this occurrence.
The estimation results of dynamic conditional covariance indicate that this event indeed triggered financial contagion and volatility spillover effects in the Crypto Assets market. The covariance between most asset pairs significantly increased, especially for ETH, SOL, and LINK. However, the spillover effects were not uniformly distributed among all assets, as some assets like LTC and XRP experienced a decrease in covariance after the event.
!7384158
3.2 Information Cascade Effect
Cumulative Abnormal Returns (CARs) analysis reveals the information cascade effects triggered by the issuance of Meme coins. In the pre-event phase, most Crypto Assets experienced positive returns, likely driven by speculative expectations. After the event, three key dynamics emerged:
SOL has performed exceptionally well, surpassing all other assets, possibly due to its role as a Meme coin in the blockchain.
LINK has performed strongly, which may be related to its association with large tech companies.
Mature Crypto Assets such as Bitcoin and Ethereum have gradually stabilized after a moderate rise, reflecting their market resilience.
Meanwhile, other Meme coins like DOGE and SHIB have shown weakness, indicating an asset substitution effect. Although AVAX and DOT have a solid technical foundation, they have also not escaped the trend of capital transfer.
Research results indicate that asset-specific narratives, technical relevance, and investors' subjective perceptions can significantly amplify the differential responses of asset returns during major information shocks.
!7384159
Conclusion
Research shows that the market's response to this event exhibits significant heterogeneity. Assets directly related to Meme coins benefit significantly, while mainstream Crypto Assets show stronger stability. This reflects that investor sentiment is not only influenced by fundamental technical factors but is also increasingly affected by geopolitical and policy narratives.
Research reveals the high sensitivity of the Crypto Assets market to external events and its tendency to be driven by speculative behavior. As digital assets increasingly intertwine with political and economic issues, ongoing monitoring of this interaction is particularly important for understanding the impact on market stability.
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Fren_Not_Food
· 09-02 01:46
A bunch of politicians are just arbitraging and speculating.
View OriginalReply0
0xLuckbox
· 08-31 13:38
It's that season to Be Played for Suckers again~
View OriginalReply0
NotAFinancialAdvice
· 08-30 02:57
Playing political pump again.
View OriginalReply0
SnapshotStriker
· 08-30 02:57
After playing for so long, the spillover effect is still being superstitious; just go all in and that's it.
View OriginalReply0
RektRecorder
· 08-30 02:43
Invest in meme coins, and when they rise, that's it.
Meme coin triggers heterogeneity fluctuation in the crypto assets market: Analysis of political signal impact
From Zero to Hero: The Spillover Effect of Meme Coins in the Crypto Assets Market
Recently, a study on the impact of Meme coins on the Crypto Assets market has attracted widespread attention. The study analyzed an event where a well-known political figure issued a Meme coin, revealing the heterogeneous volatility spillover effects driven by market sentiment and fundamentals. This event highlights the increasingly important role of political factors in shaping the Crypto Assets market and investor behavior.
Introduction
The impact of political dynamics on financial markets is increasingly deepening, and the Crypto Assets market has become an important area where politics and finance intersect. The 2024 U.S. presidential election further highlights this relationship, with a Republican candidate shifting to support digital assets, claiming to make the U.S. the "global capital of cryptocurrency" and placing Crypto Assets at the core of their economic agenda.
On January 18, 2025, this candidate issued their official Meme coin on the Solana blockchain. Within 24 hours, the coin's price skyrocketed by 900%, with a trading volume of $18 billion, and a market cap exceeding $4 billion, surpassing the largest Meme coin at the time. The next day, the issuance of another Meme coin related to their family further fueled market speculation. These events are not only speculative in nature but also represent a significant exogenous shock, whose impact extends beyond financial speculation, signaling broader regulatory and political agendas.
This study aims to explore how this event serves as both a political signal and a financial event impacting the Crypto Assets market. The primary focus is on the following three questions:
The study employs the Baba-Engle-Kraft-Kroner (BEKK) multivariate Generalized Autoregressive Conditional Heteroskedasticity (MGARCH) model to analyze the top ten crypto assets by market capitalization. The results indicate significant volatility spillover effects among crypto assets following the release of Meme coins, suggesting the presence of financial contagion in the market. Solana and Chainlink recorded the largest gains due to their infrastructural and strategic connections. In contrast, mainstream crypto assets like Bitcoin and Ethereum displayed strong resilience. Conversely, other Meme coins such as Dogecoin and Shiba Inu experienced depreciation, with funds likely shifting towards newly issued Meme coins.
This event occurred in a highly politically polarized environment in the United States, closely related to strong political emotions, which heightened investor sensitivity and exacerbated market reactions. For some investors, this symbolizes a unique speculative opportunity; while others, aware of the political and regulatory risks due to its controversial image, adopt a more cautious stance. This polarization explains the observed high volatility and differentiated market responses.
This study is the first paper analyzing the impact of politically connected tokens on the Crypto Assets market, expanding the understanding of how political narratives influence decentralized financial markets. Unlike previous research that often focused on negative shocks, this study focuses on the impact of positive shocks driven by political signals on the market. The findings provide important references for academia, practitioners, and policymakers, revealing the heterogeneity of market responses to politically connected tokens, and highlighting how asset characteristics influence financial contagion dynamics.
!7384155
Data and Methods
2.1 Data and Sample Selection
The study used per-minute closing median price data for the 10 most representative Crypto Assets among the top 20 by market capitalization, including Bitcoin, Ethereum, Ripple, Solana, Dogecoin, Chainlink, Avalanche, Shiba Inu, Polkadot, and Litecoin. The data comes from a centralized trading platform in the United States, covering the time period from January 11, 2025, to January 25, 2025, encompassing a symmetrical time frame one week before and after the release of the Meme coin.
Research using the following formula to calculate Crypto Assets return rate:
Yield = ln(Pt / Pt-1)
Among them, Pt represents the price of digital assets at time t.
The event time is defined as January 18, 2025, at 2:44 AM Coordinated Universal Time (UTC), which is the official release time of the new U.S. president's official Meme coin announcement. The study calculated the Cumulative Abnormal Returns (CARs) to assess the information cascade effect.
!7384156
2.2 Method
The study uses the BEKK-MGARCH model to analyze the impact of the launch of Meme coins on the Crypto Assets market. The model assumes that the logarithmic returns follow a normal distribution with a mean of zero and a conditional covariance matrix of Ht. The model is set as follows:
[Mathematical formula omitted here]
H represents the unconditional covariance matrix. The parameter matrix satisfies a,b>0, and a+b<1, to ensure the stability and positive definiteness of the model. The study then conducted a contagion effect test, using a relatively strict significance level of α=0.001.
!7384157
Result
3.1 Volatility Spillover Effect
Research results indicate that the interconnection among Crypto Assets significantly strengthened after the event, supporting the hypothesis that "the event triggered a volatility spillover effect." The returns of various Crypto Assets experienced sharp fluctuations during the event, reflecting the systemic impact of this occurrence.
The estimation results of dynamic conditional covariance indicate that this event indeed triggered financial contagion and volatility spillover effects in the Crypto Assets market. The covariance between most asset pairs significantly increased, especially for ETH, SOL, and LINK. However, the spillover effects were not uniformly distributed among all assets, as some assets like LTC and XRP experienced a decrease in covariance after the event.
!7384158
3.2 Information Cascade Effect
Cumulative Abnormal Returns (CARs) analysis reveals the information cascade effects triggered by the issuance of Meme coins. In the pre-event phase, most Crypto Assets experienced positive returns, likely driven by speculative expectations. After the event, three key dynamics emerged:
Meanwhile, other Meme coins like DOGE and SHIB have shown weakness, indicating an asset substitution effect. Although AVAX and DOT have a solid technical foundation, they have also not escaped the trend of capital transfer.
Research results indicate that asset-specific narratives, technical relevance, and investors' subjective perceptions can significantly amplify the differential responses of asset returns during major information shocks.
!7384159
Conclusion
Research shows that the market's response to this event exhibits significant heterogeneity. Assets directly related to Meme coins benefit significantly, while mainstream Crypto Assets show stronger stability. This reflects that investor sentiment is not only influenced by fundamental technical factors but is also increasingly affected by geopolitical and policy narratives.
Research reveals the high sensitivity of the Crypto Assets market to external events and its tendency to be driven by speculative behavior. As digital assets increasingly intertwine with political and economic issues, ongoing monitoring of this interaction is particularly important for understanding the impact on market stability.
!7384160