This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

Digital World Acquisition Corp. (NASDAQ:DWAC), a high-flying Special Purpose Acquisition Company (SPAC) that is gearing up to take the Trump Media & Technology Group (TMTG) public, roared to prominence a few days back when the stock soared from around $10 to a high of $175 before stabilizing at the current $60 handle.

As per the merger agreement between TTMG and Digital World Acquisition, former President Trump’s media-focused entity has been accorded an initial enterprise value of $875 million. For its part, TMTG plans to utilize the $293 million in cash proceeds that are already held in trust by Digital World Acquisition to launch a dedicated social media platform, dubbed the TRUTH Social. Additionally, TMTG also intends to launch a subscription-based, “non-woke” video-on-demand service as well as cloud-based offerings under the “tech stack” suite of products.

Digital World Acquisition Corp $DWAC is the most shorted SPAC in the domestic market.

Read my new SPAC short side recap at:https://t.co/QVAUljyQjV pic.twitter.com/nK8YjdLEc7

— Ihor Dusaniwsky (@ihors3) November 2, 2021

Given the wild price swings in Digital World Acquisition shares and the attendant emotional response from traders, it is hardly surprising that the SPAC currently has the highest in-class notional short interest (SI) at $318.25 million, as per a tabulation by S3 Partners. This corresponds to an SI of 16.98 percent of Digital World Acquisition’s entire float, behind only Altimeter Growth Corp. with an SI of 34.79 percent of its float.

Of course, such an elevated short interest reflects widespread skepticism regarding Digital World Acquisition’s prospects. Bulls perceive this SPAC as an opportunity to tap into Trump’s committed base of supporters in order to extract maximum possible value from the former President’s media-focused initiatives. On the other hand, given that we have no solid financial projections currently, the bears perceive this SPAC as nothing more than a hyped-up cash repository. As an illustration, assuming no redemptions, Digital World Acquisition’s current cash balance amounts to only $7.87 per share, based on the $293 million in cash proceeds held in trust and 37.2 million outstanding shares. In other words, the SPAC’s shareholders are currently paying $64.96 to acquire a share that entails a windfall of just $7.87 – a no-brainer short if one assumes that TMTG’s initiatives aren’t financially viable in the long run.

Moreover, the inherent structure of Digital World Acquisition has also raised some eyebrows. For instance, after the great SPAC market crash in early 2021, incentives for sponsors were viciously curtailed, with founder shares now generally being awarded only when certain performance milestones are met. However, DWAC sponsors, led by Patrick Orlando, will receive the entirety of their founder shares upfront. Additionally, all DWAC shareholders will be subjected to a post-merger lock-up period of just 150 days should the stock price stay above $12 per share. Finally, should the stock price consistently stay above $30 in the post-merger phase, TMTG owners would receive an additional 40 million shares of the combined company, thereby heralding a fierce dilutionary wave.

Bloomberg recently calculated that Trump would retain a 58 percent stake in the combined company following the merger between Digital World Acquisition and TMTG. At the current stock price and by adding in the proposed bonus of 40 million shares as well as the shares and warrants that the SPAC investors currently hold, the entire post-combination company may be worth as much as $11 billion! Consequently, Trump’s share of the pie from this deal would likely be in multiples of his current net worth of around $2.5 billion.

As if matters weren’t already quite egregious, Digital World Acquisition and TMTG are also facing a fight over the licensing of the TRUTH Social’s source code from Mastodon, a decentralized social network. Additionally, the platform has suffered a series of embarrassing attacks recently. In one instance, hackers from the notorious ‘Anonymous’ group were able to register an account with the username “donaldjtrump” on TRUTH Social. This account was then used to post pictures of pigs.

Digital World Acquisition’s elevated stock price and its soaring short interest are symptoms of a fundamental battle around its narrative. If TMTG’s ambitious initiatives pan out, they will justify the stance of the SPAC’s bulls. However, given the deal’s structure and the specter of a re-negotiation, the odds are currently stacked against a consummate bullish narrative.