Research on the Spillover Effects of Political Figure Tokens on the Crypto Assets Market

Recently, the journal Economics Letters published a research paper titled "From Zero to Hero: The Spillover Effect of Meme Coins in the Crypto Assets Market." This study analyzes the event of a well-known political figure issuing a Meme coin, revealing the heterogeneity of volatility spillover effects driven by market sentiment and fundamentals. Political signals amplify speculative dynamics, highlighting the increasingly important role of political factors in shaping the Crypto Assets market and investor behavior.

Research Background and Purpose

As political dynamics increasingly impact the financial markets, the cryptocurrency market has become an important area where politics and finance intersect. The 2024 U.S. presidential election further highlights this relationship, as a Republican candidate stated that he would make the U.S. the "global cryptocurrency capital" and place crypto assets at the center of his economic agenda. As a result, the market anticipates a more favorable policy stance during his potential term.

These are expected to be realized on January 18, 2025, when the political figure issued their official Meme Token on the Solana blockchain. Within 24 hours, the price of the Token surged by 900%, with trading volume reaching $18 billion, surpassing the market capitalization of the largest Meme Token DOGE by $4 billion at that time. The next day, the issuance of the Meme Token related to their family further fueled market speculation. These events are not only speculative in nature but also constitute a significant exogenous shock, whose impact goes beyond the realm of financial speculation, sending signals for broader regulatory and political agendas.

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This study aims to examine how this event serves as both a political signal and a financial event affecting the Crypto Assets market. The research focuses on three key questions:

1. How does the release of this Meme coin affect the returns and volatility of major Crypto Assets?

2. Did this event trigger a financial contagion effect within the Crypto Assets market?

3. Does this impact exhibit heterogeneity, manifested as different Crypto Assets responding differently based on their technological foundations, uses, or speculative appeal?

Research Methods

The study employs the Baba-Engle-Kraft-Kroner ( BEKK ) multivariate generalized autoregressive conditional heteroskedasticity ( MGARCH ) model to analyze the dynamic relationship of volatility and correlation over time. An empirical study is conducted on the top ten cryptocurrencies by market capitalization, including Bitcoin ( BTC ), Ethereum ( ETH ), Ripple ( XRP ), Solana ( SOL ), Dogecoin ( DOGE ), Chainlink ( LINK ), Avalanche ( AVAX ), Shiba Inu ( SHIB ), Polkadot ( DOT ), and Litecoin ( LTC ).

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The data source is a certain centralized trading platform in the United States, with a time range from January 11 to January 25, 2025, covering a symmetrical time span of one week before and after the release of the Meme coin on January 18, 2025. The study uses the closing mid-price calculated every minute to determine the Crypto Assets returns and calculates the Cumulative Abnormal Returns ( CARs ) to assess the information cascade effect.

Research Results

1. Volatility Spillover Effect

Research has found that after the release of Meme coins, there is a significant volatility spillover effect among Crypto Assets, indicating the presence of financial contagion in the market. The event triggered a major shift in market dynamics, with SOL and LINK recording the largest gains due to their infrastructure and strategic connections. Mainstream Crypto Assets such as BTC and ETH showed strong resilience, with their CARs and variance stabilizing in the later stages of the event. In contrast, other Meme coins like DOGE and SHIB experienced depreciation, and funds likely shifted towards the newly issued Meme coins.

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2. Information Cascade Effect

Cumulative abnormal returns ( CARs ) analysis reveals the information cascading effect triggered by the issuance of Meme coins. Prior to the event, 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, which may be related to its role as a new Meme coin on the blockchain.
• LINK also performed strongly, possibly related to its association with a large American technology company.
• Mature Crypto Assets such as BTC, ETH, XRP, and LTC have gradually stabilized after experiencing a moderate rise, reflecting their market resilience.

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At the same time, DOGE and other Meme coins like SHIB are showing weakness, displaying a clear asset substitution effect. Although AVAX and DOT have technical foundations, they are not immune to the trend of capital transfer.

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Conclusion

Research shows that the issuance of cryptocurrencies related to political figures has a significant impact on the crypto market, triggering volatility spillover effects and information cascading effects. There is a clear heterogeneity in market reactions:

• Assets with technical associations with the new Meme coin (, such as SOL ), benefit significantly.
• Major Crypto Assets ( such as BTC and ETH ) demonstrate stronger stability, serving as a market anchor.
• Investor sentiment is no longer solely dependent on technical factors, but is also influenced 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, continuous monitoring of this interaction is particularly important for understanding its impact on market stability.

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