Key takeaways:

• When memecoins boom net spillovers increase (more influential in the crypto market).

• Leading cryptocurrencies (e.g. BTC) generally dominate spillovers (influence) though memecoins dominate when they boom.

• When leading cryptocurrencies fall, they dominate spillovers.

In 2021, there were two big spikes in memecoins where $DOGE & $SHIB both skyrocketed in price by at least 100 times which attracted large attention to the memecoin space.

Interestingly though, these two big spikes in memecoins preceded two significant crashes in crypto so naturally the question arises:

Can memecoin bubbles trigger a crypto crash?

A study by Chao Li and Haijun Yang of Beihang University, Beijing analysed price trends of coins (e.g. BTC) and how they interact and affect the spillover of others (e.g. DOGE).

Spillovers: How much one asset influences the price movement of another. Who is causing volatility, and who is absorbing it?

They concluded that when leading cryptocurrencies (e.g. BTC) fall in price they are more influential (net spillovers increase) and dictate the market trend.

Though when memecoins boom, memecoins become more influential (net spillovers increase).

Net negative spillovers means the asset is not transmitting spillover/influence instead receiving more than it gives.w1wwwwww

Leading cryptocurrencies dominate influence when falling, while memecoins dominate influence when rising.

During a crash investors tend to sell 'risky' assets and watch Bitcoin for market direction so when BTC falls memecoins tend to also.

Memecoins attract fast, liquid, retail attention especially during periods of euphoria creating 'hype cycles' that can drive short-term market behaviour.

In most periods, leading cryptocurrencies are net-transmitters (of spillovers) making memecoins net-receivers yet the roles are reversed during periods of boom in memecoins.

Interestingly, the study points out that when memecoins show net positive spillovers it indicates euphoric demand for a speculative asset, foreshadowing a bubble and eventually a crash.

If you're trading memecoins, understanding how Bitcoin can have an effect on your industry (and vice versa) is vital to safeguarding your portfolio.

Memecoin traders should keep this phenomena in mind especially during times of uncertainty, managing risk promptly, diversifying assets, stabling profits and identifying bubbles to ultimately stay profitable in the long term.