Analyzing the Impact of Meme Coin Political Events on the Crypto Assets Market

Recently, a study on the impact of Meme coins on the Crypto Assets market has attracted widespread attention. This study focuses on an event where a well-known political figure issued a Meme coin, revealing the heterogeneous volatility spillover effects driven by both market sentiment and fundamentals, while highlighting the increasingly important role of political factors in shaping the Crypto Assets market and investor behavior.

Research Background and Objectives

As the influence of political dynamics on financial markets deepens, 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 key candidate has shown support for digital assets and promised to promote related friendly policies.

This expectation was validated on January 18, 2025. The political figure issued an official Meme coin on a certain blockchain, and within 24 hours, the price skyrocketed by 900%, with a trading volume reaching 18 billion USD, surpassing the market cap of the then largest Meme coin at 4 billion USD. The next day, the issuance of another Meme coin related to their family members further fueled market speculation.

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These events are not only speculative in nature but also constitute a significant exogenous shock, with impacts that extend beyond financial speculation, sending signals for broader regulatory and political agendas.

This study aims to explore the following three core issues:

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, manifesting as different responses from various Crypto Assets based on their technological foundations, uses, or speculative appeal?

Research Methodology

The study employs the Baba-Engle-Kraft-Kroner (BEKK) multivariate generalized autoregressive conditional heteroskedasticity (MGARCH) model to analyze the dynamic relationship between volatility and correlation. It selects the top ten crypto assets by market capitalization for empirical research, using proprietary data of minute-by-minute closing mid-prices, covering the period from January 11 to January 25, 2025, including a symmetric time frame of one week before and after the event.

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Key Findings

1. The volatility spillover effect is significant: After the event, there is a noticeable volatility spillover among crypto assets, indicating the presence of financial contagion in the market.

2. Heterogeneous Reaction:

   • Certain infrastructure-related Crypto Assets recorded the largest increase due to technical associations.
   • Mainstream Crypto Assets such as Bitcoin and Ethereum have shown strong resilience and are trending towards stability in the later phase.
   • Other Meme coins like Dogecoin and Shiba Inu have depreciated, and funds may shift to newly issued Meme coins.

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3. Political Sentiment Impact: The event occurred in a politically polarized environment, which heightened investor sensitivity and exacerbated market reactions. Some investors see it as a unique speculative opportunity, while others remain cautious due to potential risks.

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4. Positive Shock Impact: Unlike previous studies that focused on negative shocks, this research 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

1. The first analysis of the impact of politically associated tokens on the Crypto Assets market expands the understanding of how political narratives influence decentralized finance markets.

2. Provide important references for academia, practitioners, and policymakers, revealing the heterogeneity of market responses to politically connected tokens and emphasizing the impact of asset characteristics on financial contagion dynamics.

3. Highlights 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, continuously monitoring this interaction is crucial for understanding market stability. This study provides an important foundation for future in-depth exploration of the interaction between political factors and the Crypto Assets market.

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