SPAC reignites boom: Trump and MAGA Capital reignite Wall Street speculation fever

The Zhitong Finance App learned that the last year of Donald Trump's first presidential term set off a boom in “special purpose acquisition companies” (SPACs), with hundreds of SPACs entering the market. After Biden entered the White House, he launched a crackdown on such less transparent investments, and the boom subsided; but as Trump returned to power, SPAC returned. Since the November election, SPAC sponsors have raised more than $24 billion, easily surpassing the total amount raised over the past two years.

Quite a few of these SPACs are linked to Trump's core circle. Brandon Lutnick (Brandon Lutnick), son of the US Secretary of Commerce, Trump Media & Technology Group (Trump Media & Technology Group Corp.) CEO and former Republican Representative Devin Nunes (Devin Nunes), and Chamath Palihapitiya (Chamath Palihapitiya), a major donor who co-hosts a podcast for the Trump administration's head of cryptocurrency affairs, have all launched their own SPAC Additionally, Trump's two eldest sons are listed as advisors to a SPAC — a SPAC that has yet to sell shares and aims to acquire a manufacturer that “strengthens the foundation of the US economy.”

Currently, SPAC's investment is focused on fields that are highly compatible with the “America First” concept: nuclear energy, quantum computing (both are key development directions of the current administration), and of course cryptocurrencies. “We know that Trump and his kids are deeply involved in cryptocurrencies,” said Matt Tuttle (Matt Tuttle), CEO of Tuttle Capital Management (Tuttle Capital Management), which manages $5 billion in assets. “This kind of field did perform brilliantly, but if SPAC had nothing to do with Trump when it was launched, then it was just an old thing that didn't change medicine.”

A SPAC is a publicly traded shell company whose sole purpose is to raise capital and acquire a private company. The acquired private company will then inherit SPAC's listing eligibility. This listing path is more relaxed than traditional initial public offering (IPO) reviews, and can be called a “shortcut to listing.” Although the SPAC concept has been around for decades, it suddenly became popular in 2020 — celebrities, athletes, and Wall Street giants joined the market to launch their own SPAC.

As a large number of SPACs poured into the market, many SPACs began merging with less qualified companies, while claiming that revenue would increase by up to 300 times; this phenomenon triggered an attack by the US Securities and Exchange Commission (SEC), and investors also sued SPAC sponsors for losses.

The SEC under the Trump administration relaxed the relevant restrictions, and figures in the MAGA camp quickly seized the opportunity. A SPAC led by Lutnick is planning to merge with “Twenty One Capital” (Twenty One Capital) — a Bitcoin company linked to SoftBank Group (SoftBank Group) and Tether Holdings (Tether Holdings). Another of Lutnick's six SPACs is merging with an institution called “BSTR” (Bitcoin Standard Treasury Co., Ltd.) to invest in Bitcoin tokens.

Palihapitia raised $300 million for “American Exceptionalism Acquisition Corp. A” (American Exceptionalism Acquisition Corp. A), which plans to acquire a company involved in Trump's favorite fields (such as decentralized finance and artificial intelligence). Its stock price rose 13% in the first few weeks of listing, making it one of the best performing SPACs without announcing a merger deal.

According to the data, as of October 17, more than a quarter of the more than 150 SPACs that have submitted IPO applications or completed fund-raising this year have targeted industries in areas that are in line with Trump's policy agenda. Jay Ritter (Jay Ritter), a finance professor at the University of Florida, mentioned several such deals: a partnership between a media company under Trump and a cryptocurrency holding company, and a merger between a SPAC and a gun startup (Donald Trump Jr. is a member of the startup's board). “This is crony capitalism at work,” he said. “The Trump family clearly had no qualms about the deal.”

White House spokesman Kush Desai (Kush Desai) said in a statement: “The president's personal assets are held in trust managed by his children and have nothing to do with his presidential decisions; at the same time, all members of the current administration abide by the government's moral code with the utmost seriousness.”

People who are skeptical about SPACs warn that this type of investment is extremely risky: since 2019, only about 11% of companies listed through SPAC mergers have remained above the issue price, and dozens of companies have declared bankruptcy just a few months after the US stock listing. Meanwhile, since the end of 2018, the S&P 500 has more than doubled, and the Nasdaq 100 has nearly tripled. “SPAC's success rate is insufficient to match its risk,” said Greg Martin (Greg Martin), managing director of the brokerage firm Rainmaker Securities. “These companies are probably companies that cannot be listed through conventional methods.”