Marin Katusa: Bitcoin is the commodity coming for every company’s cash

Reprinted from the Katusa’s Investment Insights newsletter

Most corporations in the S&P 500 are in the business of actively destroying their own capital. It’s their only option. They have to hold cash and cash equivalents, their “treasury”, as a buffer to make payments and for strategic flexibility.

Corporate treasuries are generally invested in “risk-free” Treasury bills or money market funds. They’re both convenient short-term parking spaces for cash. Only they destroy cash’s value. The compound annual growth rate on T-Bills over the past century is a paltry 3.4%, before inflation and the erosion of value from money printing.

Using T-Bills to preserve capital is like trying to keep an ice cube cold on a summer day by … holding it. They just barely slow the inevitable decline in a corporate treasury’s value.

Even before the downgrading of U.S. debt by Fitch and S&P, traditional Treasury investments have not been as “risk-free” as they might seem. They effectively force companies to pay for the privilege of losing purchasing power to inflation.

On top of that, investors expect a certain rate of return, usually the 10% average return of the S&P 500. If a company earns 4% on T-Bills and investors expect 10%, the corporate cash reserves are no longer an asset. They’re just a drag on returns, a liability in disguise.

But there’s a single commodity, an asset with no issuer, that has:

• a perfectly fixed supply (like gold)
• zero inflation/debasement (unlike currency)
• global, 24/7 markets and
• deep liquidity (and growing deeper)

Those attributes alone make it seem well-suited to replace T-Bills in Treasury holdings. But there’s another element actively afflicting public companies, and it’s making that new commodity a necessary holding.

The S&P 493: wealth destruction in slow motion

Over the past decade, the S&P 500’s performance has been driven almost entirely by the “Magnificent 7”: Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia and Tesla. They’ve had an average CAGR of 47% per year. The CAGR of the other 493 stocks? Just 7%. With that kind of performance, capital is naturally flowing away from the S&P 493 and toward the Mag 7.

A decade ago, the Mag 7 were less than 10% of the S&P 500. Now, 1 in 3 dollars in the index is concentrated in just those 7 companies.

Meanwhile, the S&P 493 is bleeding out. Liquidity is drying up, options are going dark, and raising capital is becoming more difficult. IPOing has gone from a dream to a nightmare, unless a corporation can somehow keep up with the growth rates of the Magnificent 7.

493 of the best companies in the world have cash hoards that are losing value by the minute, stuck in Treasury bills that are barely keeping their nose above water. And they’re achieving atrocious returns by top-of-market standards. Which is why they’re beginning to buy the commodity whose performance is blowing everything else out of the water, including the Magnificent 7:

Bitcoin…