The Impact of Politically-Linked Crypto Assets on the Market: Taking Trump Meme Coin as an Example

Recently, Economics Letters published a research paper titled "From Zero to Hero: The Spillover Effects of Meme Coins in the Crypto Assets Market." The paper analyzes the event of Trump issuing Meme Coins, revealing the heterogeneous volatility spillover effects driven by both market sentiment and fundamentals, while also highlighting the increasingly important role of political factors in shaping the Crypto Assets market and investor behavior.

Research Background and Objectives

As the impact of political dynamics on financial markets deepens, the Crypto Assets market has become an important area where politics and finance intersect. The 2024 U.S. presidential election further highlights this relationship, as Republican candidate Trump has expressed support for digital assets and promised to make the U.S. the "Crypto Assets capital." On January 18, 2025, Trump issued the official Meme coin ($TRUMP) on the Solana blockchain, which saw its price soar by 900% within 24 hours, with a trading volume of $18 billion and a market capitalization exceeding $4 billion, surpassing the then-largest Meme coin DOGE. The following day, the issuance of the Meme coin $MELANIA related to the First Lady further fueled market speculation.

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This study aims to explore how this event serves as a political signal and financial event that impacts the Crypto Assets market, focusing mainly on three questions:

1. $TRUMP releases the impact on major crypto assets' returns and volatility
2. Does the event trigger a financial contagion effect within the Crypto Assets market?
3. Whether there is heterogeneity in the impact, whether different Crypto Assets respond differently due to their technological basis, use, or speculative appeal.

Research Methods and Data

This study uses the Baba-Engle-Kraft-Kroner ( BEKK ) multivariate generalized autoregressive conditional heteroskedasticity ( MGARCH ) model to analyze the dynamic relationship between volatility and correlation. The research selects the top ten crypto assets by market capitalization, using minute-by-minute closing price data from January 11 to January 25, 2025, covering one week before and after the release of Trump Meme coin on January 18, 2025 (.

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Key Findings

1. Volatility Spillover Effect: After the release of Trump Meme coin, there is a significant volatility spillover effect among crypto assets, indicating the presence of financial contagion in the market.

2. Heterogeneous Reaction:

   • Solana and Chainlink recorded the largest gains due to infrastructure and strategic associations.
   • Bitcoin and mainstream Crypto Assets like Ethereum have shown strong resilience.
   • Other Meme coins like Dogecoin and Shiba Inu have depreciated, and funds may shift towards $TRUMP

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3. Political Sentiment Impact: The Trump brand is associated with strong political sentiment, which has heightened investor sensitivity and intensified market reactions. Some investors view it as a speculative opportunity, while others adopt a cautious attitude due to political controversies.

4. Positive Shock Effects: Unlike previous research that has largely focused on negative shocks, this study finds that positive shocks driven by political signals may have a greater impact on the volatility of Crypto Assets.

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Significance of Research

This study analyzes for the first time the impact of politically associated tokens on the Crypto Assets market, expanding the understanding of how political narratives influence decentralized financial markets. The findings provide important references for academia, practitioners, and policymakers, revealing the heterogeneous market responses of politically associated tokens and emphasizing how asset characteristics affect financial contagion dynamics.

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Conclusion

Research shows that the issuance of Crypto Assets related to political figures has a significant impact on the crypto market, but the market response is heterogeneous:

• SOL benefits significantly from direct technical associations.
• The assets of the shared underlying blockchain have also been boosted.
• Major assets such as Bitcoin and Ethereum have shown stronger stability, serving as market anchors.

These findings reveal the high sensitivity of the Crypto Assets market to external events, as well as its characteristics driven by speculative behavior. As digital assets increasingly intertwine with political and economic issues, continuous monitoring of this interaction is particularly important for understanding the impact on market stability.

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