Wall Street traders are telling me they can’t wait for the Securities and Exchange Commission to give the green light to Digital World Acquisition Corp., the shell company holding former President Donald Trump’s new right-wing Twitter alternative named “Truth Social.” 

And it’s not because they like the stock. 

Traders are already eyeing the so-called Special Purpose Acquisition Corp., or SPAC, for the mother of all shorts, betting that shares will eventually fall to penny-stock levels ($5 or less). Part of the pessimism stems from Truth Social’s lousy rollout; it has been plagued by technological glitches and management upheaval since its February launch. 

But the possible nail in the coffin for Truth Social is Tesla founder Elon Musk’s bid to take over Twitter. With a net worth of around $250 billion, Musk has agreed to plunk down $44 billion to purchase the financially troubled but influential micro-blogger, making a right-leaning Twitter ­alternative like Truth Social largely obsolete. 

Musk, recall, predicated his interest on rooting out Twitter’s progressive bias that has been alleged for years by the conservative politicians and commentariat despite vehement denials from Twitter ­itself. Many Musk watchers expect him to reinstate Trump and others who had been suspended by Twitter’s PC algorithms. 

Whether Trump or, say, vaccine skeptic Alex Berenson gets back on the site remains to be seen, of course (Trump has said he’s not interested), but already prominent conservatives in the media who boycotted Twitter are returning to the fold thanks to Musk. They’re also helping to make Wall Street’s bear-case bet against Truth Social. 

Downloads way down 

The biggest appeal of Truth Social, of course, has been Trump, who was booted from Twitter after the Jan. 6, 2021, Capitol riot. But the former president hasn’t put much effort into the new venture, having made just one post since its launch — until Thursday, when he posted again on Truth Social, sparking an uptick in downloads for the site. Still, according to Statistica, approximately 2 million users downloaded Truth Social in its first two weeks; downloads then fell to 218,000, suggesting Trump will have to do a lot more to make this thing work. 

And with conservative politics again trending toward Twitter, traders say Truth will fail to generate anywhere close to enough user traction to justify Digital World’s current share price of about $52, well off its 2022 high of just above $97 that it hit earlier in the year, even with last week’s Trump-inspired rally. 

That’s why the shorts are salivating. In a short sale, you borrow shares of the target company you’re selling, with the bet that you can satisfy the borrow with less pricey shares when the stock falls. You make money — sometimes a lot — on the difference. 

Traders tell me they are shorting Digital World only around the margins now because it is difficult to borrow shares that are in limited supply. But if the SEC approves the SPAC, they expect about 200 million shares to flood the market, and the stock to crumble to as low as
$5 as people weigh the utility of a right-wing Twitter substitute. 

The SEC, of course, could just say no to Truth Social’s blank-check holding company, Digital World, and all this would be moot. Regulators are currently looking into some possibly funky trading in the stock and asked for communications of senior executives, board members and investors. 

And the short thesis might not be such easy money. Truth Social’s techies could fix the glitches, and Trump could re-engage long-term and attract many more people to the platform. It should be noted that downloads of Truth Social jumped to No. 1 in Apple’s free App Store ahead of Twitter — just after Musk and Twitter announced they reached a deal, ironically. 

Volatile personalities 

Like Trump, Musk has a famously volatile personality, which made Elon as popular as the ex-president on the platform with 89 million followers. Just last week, Musk went after Twitter’s top lawyer despite an apparent post-deal non-disparagement clause, and Musk mused he might buy Coca-Cola so he could “put the cocaine back in.” 

Such volatility, however, isn’t always welcomed on Wall Street. That’s why some traders are betting against Musk actually carrying through with his Twitter bid and coming through with the required $21 billion in equity comprised of his Tesla stock despite the $1 billion breakup fee if he walks. 

These traders, known as merger arbs, cite several reasons for their bearishness — which has left Twitter shares trading significantly below Musk’s $52.40 offer — including his declining net worth since announcing the takeover. 

Yes, Elon can seem crazy — remember when he had a “deal” to take Tesla private at $420 a share, an apparent reference to April 20, known by tokers as an unofficial “National Marijuana Day.” The deal never happened and the SEC sued him for making it up. 

Investors forgave him, of course, because he saved Tesla from near-bankruptcy and cranked out many more electric vehicles than analysts believed possible, while shares soared and he became the world’s richest man. 

For every merger-arb guy betting against him, I hear there’s at least one trader betting against Trump and Truth Social.