Outlook for Gold Stocks in 2022

In the wake of former President Trump being banned from popular social media platforms, such as Twitter and Facebook, several new social media platforms targeting conservative audiences have emerged.

You may be familiar with social networks such as Parler and Gab, which have been associated with Trump in the past.

But these networks are not owned by the former 45th president.

For a time, former President Trump had a blog page called “From the Desk of Donald J Trump” that was touted as a social platform.

But his blog was shut down after just a month.

Now Trump is launching a new platform called TRUTH Social, aimed at an audience he feels is being silenced on other platforms.

So—why is this a story, and how does it relate to the stock market?

The company helping Trump launch this platform has already seen a massive surge in its stock price.

The company in question is a special purpose acquisition company, or SPAC.

Let’s take a look at what SPACs are, and why Trump’s social media SPAC has gotten so much attention.

What Is a SPAC?

Essentially, SPACs are shell companies that raise money from investors and list on a stock exchange.

Despite having no underlying business, these shell companies find investors who are interested in their ultimate goal – to find a suitable acquisition target.

SPACs are not new, but they are more relevant than ever.

Sometimes, SPACs are referred to as “blank check” companies because their purpose is to gather money, target a specific investment, and find a private company to partner with—in this case, a new social network.

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SPAC vs. CPC: What’s the Difference?

After reading a basic description of what a SPAC is, you might be wondering what the difference between a CPC vs SPAC is.

Both CPCs and SPACs are typically shell companies that raise capital for an IPO.

But how they form, the rules that govern them, and what they offer investors differs.

CPCs, or capital pool companies, allow businesses to raise additional capital to go public.

CPCs allow small companies to grow with the help of experienced directors, enter the market via IPO, and raise capital for the company.

Compare this to a SPAC, whose purpose is to allow small and new companies to gain capital, gain interest and investments from expert investors, and speed up the IPO process.

Additionally, the approval process for both groups varies.

A CPC must get approval from the TSX Venture Exchange (TSXV) or the Canadian Securities Exchange (CSE) – Canada’s stock exchanges for venture-stage companies – to protect investors.

Similarly, to protect investors, a SPAC must get approval from the exchange it will be listing on (such as the NASDAQ, NYSE). It also needs to give investors voting rights in company acquisitions.

What Makes SPACs So Popular?

Over the past couple of years, SPACs have grown in popularity.

In 2019 alone, SPACs raised over $13 billion for small and new companies.

But why are they so popular right now? There are three main reasons:

1. Demand for SPACs

The first reason has to do with the shrinking number of public companies.

In US Markets today there are over 4,000 public companies compared to 8,000 about 20-30 years ago.

Despite the drop in number, the amount of funding in public markets has increased.

Stock exchanges make their money by bringing in new companies to list, which means pushing to bring more SPACs into the market.

2. Private Equity Markets

The second reason for the surge in popularity of SPACs is the private equity market.

There has been a significant increase in capital invested in private equity, yet the number of exits has declined.

Private equity portfolios support the SPAC model because they are always searching for ways to exit and make a return.

3. Thank the SEC

The third reason for the uptick in SPACs’ popularity is SEC regulations.

We know what you’re thinking—how can adding regulations increase the popularity of anything?

With SEC regulations comes more legitimacy in the investment world. If the SEC wants to regulate it, they must be doing something right.

To ensure all parties benefit, the SEC has stepped in to set up fixed pricing for each IPO, and they regulate voting and redemption rights.

Trump Has Launched New Social Media Network

Trump’s very own social media network, TRUTH Social, is designed to be similar to other platforms, specifically Twitter.

His venture into social media is being funded by Digital World Acquisition Corp. (DWAC), a SPAC.

The goal is to use the massive following Trump has garnered over his presidency to fund other projects Trump has in the works.

Plans include subscription streaming services for news, podcasts, and entertainment.

Before announcing the joint venture, the Digital World SPAC was trading under $10 a share.

But on Thursday, October 21st, 2021, its share price shot up to $40. The following day it closed nearly at $94 a share. It has since fallen again, hovering at around $50 a share at the end of December 2021.

Is It a Scam?

You may be wondering if you should join other investors jumping in on this stock.

No doubt the numbers above look promising, but there is more than meets the eye here.

Let’s consider a few things before diving right into investor mode.

For one, Trump’s initial attempt at a social media platform, his blog, didn’t last more than a month. It would be a shame to pour in funding into something that might not last long.

Secondly, you shouldn’t base your hopes in this venture on the success of other social media platforms.

After all, Facebook and Twitter didn’t become giants overnight, and they were also first-movers.

So while the massive surge looks great on paper, there’s no telling how long it will last. Proceed with caution here.

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