October 1, 2022


The bitcoin mining industry has now grown to the point where it rivals other similar industries that have been around for longer. However, the operations of bitcoin mining companies compared to these established commodity companies are very different. This is most evident in the way these companies manage their revenue versus administrative costs, which differs greatly between mining firms and other commodity firms.

Bitcoin miners spend too much

Public Bitcoin miners have been shown to spend a much larger portion of their revenue on administrative costs. Looking at the spending patterns of other established commodity companies, Bitcoin miners spend a very large percentage on administration.

The average portion of revenue spent by bitcoin miners on administrative costs was around 50%, although this is an industry average. Some have managed to reduce their administrative spending, while others have been found to be spending almost all of their income on this.

Bitcoin

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

A comparison between bitcoin miners, gold mining and the oil and gas industry shows a big disparity here. In the oil and gas industry, the average spending on administrative costs was 2%, while the administrative costs of the gold mining industry were 3%.

Why do they spend so much?

Bitcoin mining companies spend so much on administration, partly because of how young they are. Unlike their peers in the gold mining and oil and gas industries, they haven’t had time to get into an equilibrium where their administrative costs cost only a fraction of their revenue.

Marathon Digital is a miner that uses almost 100% of its revenue. Last year, the company reported $266 million in revenue, with $259 million spent on administration. The company offers a generous stock compensation program to its top employees, and since these executives were able to achieve all of their growth targets for the year, the company had to spend $161 million of revenue on stock compensation for its executives alone.

Bitcoin price chart from TradingView.com

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

On the other side of the spectrum, some miners have managed to reduce their administrative spend. Argo Blockchain has managed to reduce its administrative costs from 2021 to 16% of total revenue, one of the lowest in the world.

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

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

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