Research Reveals the Impact of Politically Related Meme Coins on the Crypto Assets Market

A recent study analyzed the impact of Trump issuing Meme coins on the Crypto Assets market. The study found that this event triggered a heterogeneous volatility spillover effect driven by both market sentiment and fundamentals, with political signals amplifying speculative dynamics, highlighting the important role of political factors in shaping the Crypto Assets market and investor behavior.

Research Background and Purpose

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, with Republican candidate Trump shifting to support digital assets, declaring he wants to make America the "Crypto Assets capital."

On January 18, 2025, Trump issued the official Meme coin ($TRUMP) on the Solana blockchain. Within 24 hours, the price of $TRUMP surged by 900%, with a trading volume reaching $18 billion, and a market capitalization surpassing the then largest Meme coin DOGE by $4 billion. The next day, the issuance of $MELANIA further fueled market speculation. These events were not only speculative in nature but also constituted a significant exogenous shock, with impacts extending beyond financial speculation, releasing broader signals regarding regulatory and political agendas.

This study aims to explore how this event acts as a political signal and influences the Crypto Assets market, focusing on three questions:

1. The release of $TRUMP's impact on the returns and volatility of major Crypto Assets.
2. Did the event trigger a financial contagion effect within the Crypto Assets market?
3. Whether the impact is heterogeneous, whether different Crypto Assets react differently due to their technological basis, use, or speculative appeal.

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Research Method

The research adopts the Baba-Engle-Kraft-Kroner ( BEKK ) multivariate generalized autoregressive conditional heteroskedasticity ( MGARCH ) model to analyze the dynamic relationship between volatility and correlation. An empirical study is conducted on the top ten ranked crypto assets by market capitalization, using minute-by-minute closing mid-price data from the Gemini exchange, covering the period from January 11 to January 25, 2025, encompassing one week before and after the release of Trump's Meme coin.

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Main Findings

1. Volatility Spillover Effect: After the release of Trump's Meme coin, significant volatility spillover occurred among crypto assets, indicating the presence of financial contagion. The event triggered a major shift in market dynamics, with Solana and Chainlink experiencing the largest gains due to their infrastructure and strategic connections.

2. Heterogeneous response: Mainstream Crypto Assets such as Bitcoin and Ethereum have shown strong resilience, accumulating abnormal returns ( CARs ) and variance stabilizing in the later stages of the event. In contrast, Meme coins like Dogecoin and Shiba Inu have depreciated, and funds may have shifted towards $TRUMP.

3. Political sentiment influence: The issuance of $TRUMP occurs against the backdrop of heightened political polarization in the United States, with the Trump brand associated with strong political emotions, which increases investor sensitivity and exacerbates market reactions. Some investors see it as a unique speculative opportunity, while others adopt a cautious attitude due to potential risks.

4. Information Cascading Effect: Through the accumulation of abnormal returns ( CARs ) analysis, the study found that events have had a significant structural impact on market dynamics. SOL performed the best, LINK also showed strong performance, while mature crypto assets such as Bitcoin and Ethereum stabilized after a brief rise. Other meme coins like DOGE and SHIB performed poorly, indicating an asset substitution effect.

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Significance of the Research

This study is the first to analyze 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 focused on negative shocks, this study examines the effects 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 emphasizing how asset characteristics influence the dynamics of financial contagion.

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Conclusion

Research shows that the market's reaction to the issuance of Crypto Assets related to political figures exhibits significant heterogeneity. Directly related assets like ( and SOL) benefit noticeably, while mainstream Crypto Assets demonstrate stronger stability. This reflects that investor sentiment is influenced not only by technical factors but also increasingly by geopolitical and policy narratives, especially when these narratives come from highly symbolic leaders.

As digital assets increasingly intertwine with political and economic issues, it becomes more important to continuously monitor the impact of this interaction on understanding market stability. This study reveals the high sensitivity of the Crypto Assets market to external events and its characteristics that are easily driven by speculative behavior, providing new perspectives and directions for future related research.

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