Many in the traditional finance world run by Wall Street regard bitcoin as a scam or a Ponzi scheme. Meanwhile they have been pulling a much bigger fraud on investors through their latest feat of financial engineering – SPACS.
These Special Purpose Acquisition Companies are an empty shell floated on a stock exchange into which investors pour money at a typical share price of $10. The company then has a deadline of 18-24 months to find a suitable company to acquire with the cash sloshing around in the SPAC.
Why do they use this structure? It’s a quicker and cheaper way to go public than the traditional IPO process. It’s become the investment fad of recent years, with more than 850 SPACs completing IPOs and being loaded up with $597 billion of cash. What’s happened to these companies? More on that in a moment.

Part of the appeal has been the presence of celebrity sponsors such as Sir Richard Branson, Donald Trump and Chamath Palihapitiya. This worries me because their involvement attracts retail investors who may not take a sophisticated approach to due diligence. These sponsors took a chunky fee of as much as 20% of the funds raised in return for lending their name to the schemes. Now they are living with some serious reputational damage. Chamath’s SPACs have seen some of the biggest losses in a sector where only 15 SPACS are trading in positive territory after merging in 2021. Chamath’s health insurer Clover Health is down 82% and Social Finance is down 32%.
There’s even an ETF for SPACS called De-Spac and that’s down 41%. According to the Financial Times, out of 199 SPAC merges last year, 90% are trading below their $10 listing price and just 8 have outperformed the S&P500. Surprisingly in the midst of Banana Syndrome, Healthcare SPACs have been the worst performers with 44 companies being on average 49 down from their listing price.
Inevitably this has caused a cooling in investor sentiment and the withdrawal from the market of a number of upcoming SPAC projects. In the first 11 months of 2021 only 3 SPACS withdrew their IPO applications. In December alone there were 5 withdrawals and in January there have been another seven. Riverside Management Group has withdrawn three of its four applications, one of which was hoping to raise $725 million.
Remember those 850 SPACs that have already completed an IPO? 600 of them are still looking for a target company to acquire! The reality is, there are only so many good companies around who are in the perfect position in their development to want to IPO. In a climate like this, with cash rich vehicles desperately looking to buy something ahead of their looming deadline, do you think they are going to make good decisions? Are they really going to get their backers into great companies at a fair price? Or will they overpay for any old junk to keep the gravy train on the tracks and the management fees coming in?

SPACS are one American import that we need to approach with extreme care. An important question to ask is Who Gains from this? There are three winners in the SPAC system. The sponsor, who gets chunky fees just like George Clooney appearing on a coffee advert. The management company who make ongoing fees just like investment fund managers. And, of course, the target company if one is found. There’s an obvious but important point about IPOs that many investors seem to forget. Whats happening is that the founders of a company are deciding to cash out all or part of their holding for a massive liquidity event that sets them up for the rest of their lives.
Who is funding this dream outcome – you, the retail investor buying the shares on a public stock market. You are at the end of the food chain and your only hope of making a profit is to sell the shares at a higher price at some point in the future. All of which means you are taking the biggest risk of all.
What I’ve seen in recent years is that much if the explosive growth in , for example, new technology companies in fintech or biotech, is happening before they IPO. So it’s the founders and early private equity investors who make the big profits when they sell their shares in an IPO. If you’ve read any of Robert Kiyosaki’s books you’ll know that his advice is to get in early and become a private equity investor in a portfolio of companies. Your IFA might tell you this is a higher risk approach, but looking at SPACs performance so far it would be hard to find a risker asset class in any financial market.
If you follow Dee Ludlow and I in the Crypto Research Institute you’ll know how much more mainstream adoption we’re seeing for digital assets, especially Bitcoin and Ethereum. Yes, their prices have tanked at the start of 2022 but history suggests this is a buying opportunity especially on a steady, month by month dollar cost averaging approach. The amount of criminal activity in cryptos was at its lowest level ever in 2021.

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