Research Reveals the Impact of Trump Meme Coin Issuance on the Crypto Market

Recently, the journal Economics Letters published a research paper titled "From Zero to Hero: The Spillover Effects of Meme Coins in the Crypto Market." This study analyzes the impact of the Trump issuance of Meme Coins on the crypto market, revealing the heterogeneous volatility spillover effects driven by market sentiment and fundamentals, as well as how political signals amplify speculative dynamics, highlighting the increasingly important role of political factors in shaping the crypto market and investor behavior.

Introduction

In recent years, political dynamics have increasingly influenced financial markets, and the cryptocurrency 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 unprecedentedly turned to support digital assets, claiming he will make the U.S. the "global cryptocurrency capital" and place cryptocurrency at the core of his economic agenda.

These expectations were realized on January 18, 2025, when Trump issued his official Meme coin ($TRUMP) on the Solana blockchain. Within 24 hours, the price of $TRUMP skyrocketed by 900%, with a trading volume reaching $18 billion and a market capitalization exceeding $4 billion, surpassing the then-largest Meme coin DOGE. The next day, the issuance of the Meme coin $MELANIA related to the First Lady further fueled market speculation. These events were not only speculative in nature but also constituted a significant exogenous shock, whose impact extended beyond financial speculation, signaling broader regulatory and political agendas.

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

1. How does the issuance of $TRUMP affect the returns and volatility of major cryptocurrencies?

2. Did this event trigger a financial contagion effect in the crypto market?

3. Does this impact have heterogeneity, manifested as different responses from various cryptocurrencies based on their technological foundations, uses, or speculative appeal?

To answer these questions, the research adopts the Baba-Engle-Kraft-Kroner( BEKK) multivariate generalized autoregressive conditional heteroskedasticity( MGARCH) model, which is particularly suitable for analyzing the dynamic relationship of volatility and correlation over time.

The study selects the top ten cryptocurrencies by market capitalization for empirical analysis and finds that 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. The event triggered a major shift in market dynamics, with Solana and Chainlink recording the largest gains due to their infrastructure and strategic connections. In contrast, mainstream cryptocurrencies like Bitcoin and Ethereum showed strong resilience, with their cumulative abnormal returns (CARs) and variance tending to stabilize in the later stage of the event. Conversely, other Meme coins such as Dogecoin and Shiba Inu experienced depreciation, and funds likely shifted towards $TRUMP.

The issuance of $TRUMP occurs in an environment of high political polarization in the United States, and the Trump brand itself is closely related to strong political sentiment, which increases investors' sensitivity and exacerbates market reactions. For some investors, Trump's endorsement symbolizes a unique speculative opportunity, giving rise to a strong "herding effect"; while other investors are aware of the political and regulatory risks due to his controversial image and take a more cautious stance. This polarization explains the observed high volatility and differentiated market reactions—from enthusiasm for expected political support to skepticism about reputation and political uncertainty.

In recent years, the contagion effects in the crypto market have gained increasing attention due to their significant implications for financial stability, risk management, and portfolio diversification. Existing research primarily focuses on spillovers between cryptocurrencies themselves or between cryptocurrencies and traditional financial assets, revealing patterns of connectivity, contagion risk, and volatility transmission. However, most of these studies concentrate on financial or technical triggers, such as market crashes, liquidity constraints, or blockchain innovation. Political signals, especially those related to contagion mechanisms associated with politically connected tokens, remain a gap in research.

This study is the first to analyze the impact of politically connected tokens on the crypto market. It expands the understanding of how political narratives affect decentralized financial markets. Furthermore, unlike previous studies that have largely focused on negative shocks, this research focuses on the positive shocks driven by political signals and their impact on the market. Notably, there is evidence that positive shocks have an even greater effect on the volatility of cryptocurrencies than negative shocks. Ultimately, this study provides 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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Data and Methods

Data and Sample Selection

This study uses proprietary data of minute-by-minute closing mid-prices, covering the 10 most representative cryptocurrencies among the top 20 by market capitalization: Bitcoin ( BTC ), Ethereum ( ETH ), Ripple ( XRP ), Solana ( SOL ), Dogecoin ( DOGE ), Chainlink ( LINK ), Avalanche ( AVAX ), Shiba Inu ( SHIB ), Polkadot ( DOT ), and Litecoin ( LTC ). The data comes from a certain centralized trading platform in the United States, obtained from the database.

The dataset contains 20,160 observations, with a time span from January 11 to January 25, 2025, covering the period symmetrical to the official issuance of Trump's Meme coin on January 18, 2025, (, for a week before and after, facilitating a comparative analysis of the event.

According to existing literature practices, this study uses the following formula to calculate cryptocurrency returns:

Yield = ln)Pt / Pt-1(

Where Pt represents the price of digital assets at time t.

The event time is defined as January 18, 2025, Coordinated Universal Time ) UTC ( at 2:44 AM. This point marks the official release of the new U.S. president's Meme coin. Calculate cumulative abnormal returns to assess information cascading effects. The average benchmark returns of each encryption currency are calculated from January 1 to January 10, 2025, to represent a relatively stable preliminary sample. Then, subtract this benchmark from the actual returns during the sample period to obtain excess returns over the market benchmark, and derive CARs through accumulation.

) method

Using the BEKK-MGARCH model to analyze the impact of the issuance of Trump Meme coin on the crypto market. Assume that the log returns follow a normal distribution with a mean of zero and a conditional covariance matrix of Ht, the model is set as follows:

[Model formula omitted]

Among them, H represents the unconditional covariance matrix. The parameter matrix satisfies a, b > 0, and a + b < 1, to ensure the model's stability and positive definiteness. Subsequently, the contagion effect test is conducted. Considering the type I error problem that may arise when using high-frequency data, this paper adopts a stricter significance level of α = 0.001.

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Result

volatility spillover effect

Preliminary analysis results reveal the interrelationship between crypto assets. After the event occurred, the interconnectivity between assets significantly increased, supporting the hypothesis that "the event triggered a volatility spillover effect." The volatility of the stable logarithmic returns increased, reflecting the phenomenon of rising market instability and accelerating adjustment speed. The returns of various crypto assets experienced severe fluctuations during the event, further emphasizing the systemic impact of this event.

The dynamic conditional covariance results estimated by the BEKK-MGARCH model indicate that the event indeed triggered financial contagion and volatility spillover effects in the crypto market. The covariance coefficients in the later stages of most events are significant at the 0.001 level, especially among assets such as ETH, SOL, and LINK, where the covariance significantly increases, showing stronger interconnectedness and a higher degree of market integration. In contrast, although SHIB and DOT also reached a significance level of 0.01, their impact is weaker. The covariance of LTC and XRP, on the other hand, decreased after the event, indicating that the spillover effects are not uniformly distributed among all assets. Overall, the results highlight the structural impact of this Meme coin issuance event on the entire crypto market.

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information cascading effect

Cumulative abnormal returns ### CARs ( analysis further reveals the information cascading effect triggered by Trump's Meme coin issuance. The results show that this event has a significant structural impact on market dynamics, manifested as asset-specific response paths and increased volatility.

In the pre-event phase, most cryptocurrencies experienced positive returns, potentially driven by speculative expectations or the market's optimistic attitude towards Trump possibly being elected as the 47th President of the United States. This indicates that even in the absence of concrete information, investors have demonstrated a clear speculative buying behavior, a phenomenon that aligns with the widely documented "fear of missing out" characteristic in the crypto market.

In the phase following the occurrence of the event, three key dynamics are particularly prominent:

1. SOL performed exceptionally well, surpassing all other assets, which is likely related to its direct technical relationship as Trump's meme coin blockchain.

2. LINK has also performed strongly, possibly related to its association with large American tech companies.

3. Mature cryptocurrencies such as Bitcoin, Ethereum, Ripple, and Litecoin have gradually stabilized after experiencing a moderate increase, reflecting their market resilience and relative insulation from cascading speculative impacts.

At the same time, other Meme coins like DOGE and SHIB appear particularly weak, showing a clear asset substitution effect, where speculative funds are shifting from old Meme coins to newly issued Trump tokens. Despite AVAX and DOT having a solid technical foundation, they have not escaped this trend of capital transfer and are showing signs of value loss.

Trump's Meme coin issuance broke the market co-movement pattern prior to the event due to this exogenous shock. Before the event, there was a high level of co-movement among various assets; however, after the event, the CARs of different assets showed significant divergence, ranging from +20% for Solana to -20% for Dogecoin and Shiba Inu.

These results reveal that asset-specific narratives, technological relevance, and investors' subjective perceptions can significantly amplify the differential responses of asset returns during major information shocks.

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Conclusion

This study examines the impact of cryptocurrency issuance associated with political figures on the crypto market, focusing on the volatility spillover effect and the information cascade effect.

Research results indicate that the market's reaction to this event shows significant heterogeneity. For instance, SOL has benefited significantly due to its direct technical association with Trump's Meme coin. Additionally, assets sharing the same underlying blockchain infrastructure have also gained a boost by riding the "coattails" of this event.

At the same time, mainstream crypto assets like Bitcoin and Ethereum have shown stronger stability due to their core position in the market, acting as a sort of anchor in this event, stabilizing the overall market structure. This indicates that investor sentiment is no longer solely dependent on fundamental technical factors, but has also begun to be significantly influenced by geopolitical and policy narratives, especially when these narratives are issued by highly symbolic leaders.

In summary, this article reveals the high sensitivity of the crypto market to external events and its tendency to be driven by speculative behavior. As digital assets increasingly intertwine with political and economic issues, it becomes particularly important to continuously monitor this interaction to understand its impact on market stability.

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