From zero to hero: Memecoins’ spillover effects in cryptocurrency markets
Political events are increasingly influencing financial markets, and cryptocurrencies are no exception. Donald Trump had made his support for digital assets clear, stating his goal to make the U.S. the "crypto capital of the planet". This created expectations that his presidency could bring more favorable policies for cryptocurrencies.
The paper, "From zero to hero: Memecoins’ spillover effects in cryptocurrency markets", published on Economics Letters analyzes what happens in the cryptocurrency market upon the launch of a cryptocurrency linked to a political figure, specifically Donald Trump's official memecoin called $TRUMP. The authors, Salvatore Perdichizzi and Luca Galati, investigate volatility spillovers and information cascade effects triggered by this event.
The launch of the $TRUMP memecoin on January 18, 2025, was seen as a major outside event and a political message. This new coin saw an incredible increase of 900% and generated $18 billion in trading volume within just 24 hours, even outperforming Dogecoin, which was the largest memecoin at the time. The launch of another related coin, $MELANIA, the next day further fueled market excitement. This event happened during a time of strong political division in the U.S., and Trump's image amplified market reactions, leading to both excitement (like the "fear of missing out" or FOMO) and caution among investors.
How was the research performed?
To understand the impact, the researchers analyzed minute-by-minute price data for 10 major cryptocurrencies (like Bitcoin, Ethereum, Solana, Dogecoin, etc.) from a specific exchange, looking at the week before and the week after the $TRUMP launch. They used a statistical model to measure how much prices were moving and how the relationships between different coins changed over time, essentially looking for "contagion" or "spillover" effects. They also calculated how much each coin's price went up or down compared to its normal behavior to see how information about the launch affected different coins.
What are the main findings?
The findings from the study highlight how politically connected cryptocurrencies, like Donald Trump’s $TRUMP memecoin, can trigger substantial and diverse effects across the crypto market. The launch acted as both a financial and political shock, driving heightened volatility and contagion among major digital assets. This reveals that political signals—especially those tied to influential figures—can serve as powerful catalysts for market movement, influencing investor sentiment and speculative behavior. Notably, while established coins like Bitcoin and Ethereum remained relatively stable, more speculative assets showed sharp divergences, suggesting that market reactions are highly asset-specific.
What are the implications of these results?
The study marks a shift in understanding crypto contagion, emphasizing the role of political narratives alongside traditional financial or technical triggers. These insights carry implications for investors, who must now account for political developments in risk assessment, and for regulators, who may need to consider oversight for politically branded tokens due to their outsized market impact. Ultimately, the research underscores the crypto market's vulnerability to external events and suggests that speculative tokens linked to public figures are more than gimmicks—they are systemic variables with the power to reshape market dynamics.
