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The bitcoin mining industry has now grown to the point where it is compared to other similar industries that have been around for longer. However, the operations of bitcoin mining companies compared to these established commodity-based companies are very different. This is most evident in how these companies manage their revenues with respect to administrative costs, which differ greatly between mining companies and other commodity-focused companies.

Bitcoin miners spend too much

Public bitcoin miners have been shown to spend a much larger share of their revenue on administration fees. Looking at the spending habits of other established commodity-based companies, bitcoin miners spend a very large percentage on administration.

The average share of revenue spent by bitcoin miners on administrative costs was around 50%, although this is an industry-wide average. Some have been able to reduce their administrative expenses while others have spent almost all of their income on it.

Bitcoin

BTC mining firms spend more of their revenue | Source: Arcane Research

A comparison between bitcoin miners, gold mines, and the oil and gas industry shows a big disparity here. In the oil and gas industry, the average administrative expense was 2%, while the gold industry’s administrative expense was 3%.

Why are they spending so much?

Bitcoin mining companies spend so much on administration, in part because of their young age. Unlike their counterparts in the gold mining and oil and gas industries, they did not have time to reach an equilibrium where their administrative costs would only cost a small fraction of revenues.

Marathon Digital is a miner that uses almost 100% of its revenue. In the past year, the company reported revenue of $266 million and $259 million was spent on administration. The company offers a generous equity compensation program to its top employees and since these executives were able to meet all growth targets for the year, the company had to spend $161 million in earnings on equity compensation for its only leaders.

TradingView.com Bitcoin Price Chart

BTC trending above $19,000 | Source: BTCUSD on TradingView.com

At the other end of the spectrum, some miners have been able to reduce their administrative expenses. Argo Blockchain has been able to bring its administrative costs down since 2021 to 16% of its total revenue, one of the lowest in the space.

Another reason is that the companies are so young and the stakeholders have very little control over the companies. And because it’s a capital-intensive industry, they’re able to pay out those big executive stock compensations. However, as the industry matures, greater shareholder oversight is expected, which will lead to a reduction in revenue spent on administrative costs.

Featured image from TechSpot, charts from Arcane Research and TradingView.com

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