Introduction

On July 22, 2020, billionaire investor Bill Ackman’s Pershing Square Tontine Holdings became the biggest special purpose acquisition company (SPAC) ever. SPACs are blank-check companies that raise money publicly with the goal of merging with a yet-to-be-identified private company. So investors don’t know what company the SPAC will eventually invest in and are basically relying on the sponsor’s reputation. In the case of Pershing,  it was Ackman’s reputation for making money that induced investors to invest. Investors essentially bet that Ackman “would find a great deal and get the merger done.”

Ackman raised $4 billion from investors as part of Pershing’s initial public offering (IPO). At the time, Ackman said that he thought Pershing would be able to “make an advantageous deal for our shareholders.” Two years later, on July 12, 2022, Ackman was forced to return the $4 billion to investors after failing to consummate a merger deal.

Pershing’s IPO occurred during the height of the SPAC craze in 2020 and 2021, and its investors were actually the lucky ones, since Ackman’s inability to find an investment target meant that they got their money back. Many other investors lost money after their SPAC merged with its target. That’s because SPACs were not subject to the same degree of regulatory oversight as traditional IPOs. So even though many SPACs had celebrity sponsors, their disclosures left investors in the dark. As a result, more than one-fifth of the stocks that went public via a SPAC merger ended up trading for less than a $1. Many such companies eventually went bankrupt, resulting in billions of lost investor capital.

Now, SPACs are back. Their return is “a clear case of market memory loss.” Although just two years ago Wall Street turned away from SPACs in search of the next big stock market fad, memories have become so short that the next fad may be SPACs again.

“Three years after a pandemic-era boom flamed out in spectacular fashion, investors once again have been gravitating toward shares of shell companies known as ‘special purpose acquisition companies,’ or SPACs.”

SPACS have raised $11 billion so far in 2025. Many that have come to market recently are targeting mergers with crypto companies. As SPACs return, it’s worth highlighting what went wrong a few years ago and why the next SPAC crash could be even worse this time.

The Risks for Retail Investors

Perhaps the biggest SPAC bust was WeWork. WeWork became a public company after merging with BowX Acquisition, a SPAC, in October 2021. At the time of the merger, WeWork was valued at $9 billion. Less than two years later, WeWork was a penny stock.

In November 2023, just over two years after the merger, WeWork declared bankruptcy.

The reason that so many SPACs collapsed is the same reason so many companies sought to go public via SPACs in the first place: loose regulations. The SEC did not review the SPAC target’s financial statements until after the acquisition, yet the SPAC was allowed to present its own financial projections of the target company to investors—something that is not allowed with a traditional IPO. So unlike with more traditional IPOs, which require a “wealth of disclosures” and due diligence processes prior to launch, SPACs could “project revenue based on very favorable assumptions.”

“This latitude in reporting would quickly grow into latitude for fraud in many cases for bullish SPACs. . . . The failures of the SPAC model were underscored by the absence of due diligence and inflation in the lofty valuation.”

In addition to WeWork, Core Scientific, one of the largest miners of Bitcoin, and Virgin Orbit Holdings, Richard Branson’s space-launch company, filed for bankruptcy after going public through SPAC transactions and wiped out billions in market value.  Bloomberg estimated the losses for SPACs that went bankrupt in 2023 at $46 billion.

WeWork has been described as a cautionary tale. Now, the question is whether investors, regulators, and the market will heed that warning. The fact that many firms taken public by SPACs had little to show in terms of a business plan or revenue meant that the SPAC bust was all too foreseeable. SPACs allowed “‘less worthy’ companies that might not have been able to launch a successful IPO” to more easily reach the public markets. The process may have been easier than a traditional IPO, but it was far less protective of investors. Unfortunately, investors are just as vulnerable to the risks of SPACs today as they were just a few years ago.

The Reasons SPACs are Back

Although the many SPAC bankruptcies and investor losses a few years ago led some to declare SPACs dead, it seems that conclusion was premature. Some 71 SPACs have already come on the market this year, with the total dollar value eclipsing the total amount raised in SPAC transactions three years ago. As Bloomberg shows, SPAC issuances are now the highest they have been since the first quarter of 2022:

The reason is simple: the political and regulatory environment has evolved. After the SPAC collapse, the SEC passed rules in 2024 to protect investors from SPACs. But the current administration and SEC are no longer focused on investor protection; instead, they are focused on doing the industry’s bidding. There is no guarantee that this SEC will enforce the SPAC rules, and SEC Chair Atkins recently said that the agency may revisit those rules.

This has emboldened SPAC sponsors, who can and do make money even when investors lose. SPACs generate lucrative fees for their sponsors, and they have also been a “boon for banks that can generate fees when they first take a company public and again when the SPAC acquires a business to run.” So the potential for profits, even at the expense of retail investors, is too enticing to resist.

“SPACS can be a wheeze for the sponsors who set them up (in return for a cut) and the investment bankers who advise them, but have tended to be less good for investors who pay these costs.”

Unfortunately, that SPACs may harm investors no longer seems to be a pressing concern.

The risk that history will repeat itself is evident from the fact that the same SPAC sponsors who earned huge fees for poorly performing SPACs a few years ago are back. Prolific sponsors like Michael Klein and Alec Gores are reentering the market.

“Mr. Klein’s past SPAC deals have a mixed track record. He has another SPAC trading publicly that’s still searching for a company to buy. In 2021, as the SPAC boom was just getting going, he struck one of the largest SPAC deals ever, to take over the electric-car company Lucid Motors in a deal then valued at $24 billion. It turned out to be a dud investment: After running up as high as $52 a share in late 2021, Lucid’s stock now hovers around $2, down about 96 percent.”

Similarly, Chamath Palihapitiya, “a venture capitalist whose roster of SPAC deals often ended with retail investors losing their shirts, also appears to want back in, even with tens of thousands of respondents to a self-commissioned poll on X.com begging him to stay out.” There is no reason to think retail investors will do better investing in SPACs now.

Why SPACs may be Even Riskier Now

Indeed, retail investors may do even worse. That’s because the new SPAC wave is focused on crypto. By one estimate, “one-third of SPAC mergers over the next year or so will involve ‘crypto or crypto-adjacent’ targets.” Companies “are being created whose sole purpose is to place their cash in crypto.” These so-called crypto treasury companies “are raising money, merging with public shells and buying up tokens at breakneck speed.” The idea is that the recent rise in the price of crypto assets can boost the companies’ stock.

The problem is that crypto’s inherent volatility makes this a very risky strategy. There is an overarching question regarding “how sustainable the treasury model will be when token values fall and premiums over net asset value begin to erode.”

“If the price of bitcoin or another crypto token were to fall sharply, the selloff might also pull down the value of a company’s stock. More troubling, though, is that a steep decline might also compel companies to sell their tokens—accelerating the selloff—especially if they borrowed heavily to acquire their crypto in the first place. For students of financial history, this is a familiar refrain. ‘We haven’t seen this type of capital activity in any crypto-related strategy within this short amount of time potentially in the history of our industry,’ said Elliot Chun, a partner at advisory firm Architect Partners. ‘We just have to be careful because it is great on the way up, but when it is on the way down, it’s going to be violent.’”

This means that the SPAC revival this time will be “even more speculative.” Investors are “likely to flee if prices plunge after a macroeconomic event, or if cybercriminals strike.” So “retail investors may be left holding the bag if token premiums vanish.”

This is why “the rush into bitcoin treasuries—inflated by cheap capital, yield promises, and brand name endorsements—is starting to resemble a bubble.”

“‘You have a whole lot of hype. You have a lot of people who aren’t crypto-native, who are new to this and don’t understand the intricacies of operating within this asset class,’ says Chun. ‘Being in crypto this long, you’re always looking for the next thing that will take us down to our next winter. This definitely has the makings of something like that.’”

All this means that the combination of SPACs and crypto may be courting disaster.

Conclusion

Investors need to remember what happened during the last SPAC craze. “The SPAC craze had nothing to do with sound investing. It was hype from the start.” That is why  “almost half of all SPACs that came to market during the 2021 heyday ended up being liquidated, and that could well happen again.” Of the 22 SPAC mergers that have closed in 2025, it is already the case that only five are trading above their $10 IPO price.

“‘I hate SPACs,’ said one fintech banker, who has worked on mergers involving blank check companies. They pointed to payments companies like Repay, Payoneer Global, and Paysafe. Each used SPACs as a way to go public and two of the three are trading below $10. All three companies have experienced volatility with their stock prices, and all three have been up for sale recently. ‘They’re just not performing well,’ the banker said of the payments companies. ‘I’ve made money off [of SPACs] but I don’t really understand their purpose.’”

SPACs are no less speculative and risky today than they were just a few years ago. “Sponsors still get paid if a deal closes, no matter how it performs,” while “retail investors are left with stock in businesses that may have less cash, fewer assets, and no clear plan.” Investors who return to this market should do so with a full understanding of the risks.

“SPACs didn’t fade because they worked. They faded because they failed. Their return isn’t a sign of progress. It’s a sign that markets forgot what happened last time.”

The markets may have forgotten, but it’s incumbent on investors to remember.

Otherwise, retail investors could be left off even worse off this time. That’s because a SPAC “is only as good as the business it merges with.” And as a Bloomberg opinion columnist recently said about the SPAC revival, “[T]hese investment vehicles are increasingly seeking to merge with crypto companies. What could go wrong?”