Activity relating to special purpose acquisition companies (SPACs) was already beginning to cool this time last year after a frenetic period of blank check IPOs, the likes of which investors had never seen.

Now the SPAC frenzy feels like a stimulus-driven fever dream that’s best forgotten. A combination of a regulatory clampdown, rising interest rates and recessionary fears pushed the number of newly minted special purpose acquisition companies to pre-pandemic lows in Q2.

Only 15 SPACs priced on US stock exchanges in the past three months, generating less than US$2 billion in fresh capital, the lowest dollar volume since 2016, according to Dealogic.

The last time there were this few SPAC IPOs was in Q1 2020, at the onset of the pandemic, when just 13 cash shells listed on US exchanges.

Seven of the 15 SPACs that listed in Q2 2022 raised less than US$100 million in their public offerings. The largest, Investcorp India Acquisition, sponsored by PE firm Investcorp and aimed at finding a deal in India, collected just US$259 million in proceeds when it floated on the Nasdaq in May.

Year to date, the average amount SPACs have raised in their IPOs is US$172 million, the lowest sum since 2014, when the annual average came to US$145 million, according to Dealogic.

Bubble over

Last year’s Q1 SPAC bubble coincided with bitcoin jumping by around 100%, both inflated by a flood of liquidity finding a home at the furthest end of the risk curve. Since then, it’s been a rough ride for SPACs.

Investors continue to redeem their cash from these vehicles when deal targets are found, while buyers and sellers are canceling proposed deals. Close to two dozen SPAC mergers have been nixed so far this year, including those targeting business news publisher Forbes, online ticket provider SeatGeek and, most recently, biotechnology company Blade Therapeutics.

In a sign of the times, the best-performing SPAC exchange-traded funds this year have not invested in any mergers at all. These funds have made a strategy of targeting so-called “do nothing” SPACs—cash shells that have taken money from investors and are earning a yield on their cash but haven’t done a deal. Meanwhile, the values of countless blank check mergers have sunk like stones amid the stock market rout.

The regulatory climate has not been kind either. The Securities and Exchange Commission has already investigated several deals for making inaccurate statements, culminating in penalties for deal participants such as Stable Road Acquisition and Nikola.

The regulatory watchdog is currently investigating Digital World Acquisition and its proposed merger with former President Donald Trump’s social media network, Trump Media & Technology Group. In addition to the regulatory probe, a securities filing this month revealed the pending transaction is facing a criminal investigation, with each member of the SPAC’s board of directors recently receiving subpoenas from a federal grand jury in New York.

For most investors, SPACs have proven to be an asset class that simply isn’t worth the risk.