Data shows the public Bitcoin mining companies have been spending more excessively on administration, compared to other industries like gold mining.
Average Public Bitcoin Miner Spends 50% Revenues On Administrative Costs
According to a new blog post by Arcane Research, most BTC miners have only focused on minimizing direct production costs, and neglected indirect expenses like administration.
The “administrative costs” here refer to the expenses incurred by companies that aren’t directly related to revenue generation. Examples of such costs include stock compensation and executive salary.
The “direct production costs,” on the other hand, include mining farm staff salaries and electricity-related costs. These two expenses make up for the two main types of expenses suffered by Bitcoin miners.
Here is a chart that shows how the BTC mining production margin has been like since 2021:
Looks like Argo had 80% margins during the period | Source: Arcane Research
As you can see in the above graph, public Bitcoin mining companies have maintained their margins around 60% to 80% during recent years, suggesting that they have been good at minimizing their direct production related costs.
The report notes that these margins should be able to cover depreciation and amortization of mining assets, administrative costs, and some profit on top.
Since the first of these is unavoidable, it would appear that the best way for miners to improve their profits is to reduce the administrative costs.
However, as the below chart shows, the public Bitcoin mining companies have been spending big on these expenses since 2021.
The high revenue percentages spent on administration by the miners | Source: Arcane Research
From the graph it’s apparent that public miners have been spending an average of 50% of their revenues on administrative costs alone.
Marathon spent even higher than the rest of the market, paying off administrative expenses with 97% of their total revenues in the last couple of years.
The company’s generous executive stock compensation program is behind why the firm has been dropping nearly all of its revenues on administration.
Some companies, however, have been much better at minimizing these costs. Argo managed to keep these expenses at just 16% of its total revenues.
A look at a comparison with other industries like oil and gas industry, and gold mining reveals that Bitcoin mining firms have been spending much more excessively on these costs.
Companies in gold mining spent only 3% of their revenues on these expenses since 2021 | Source: Arcane Research
The report explains that the main reason behind this discrepancy lies in the fact that the Bitcoin mining industry is still relatively immature, and as such, their revenues are still quite low.
Companies have been hiring experienced executive teams keeping future growth goals in mind, and hence have needed to offer highly competitive packages.
However, the post points out that the mining industry is still massively overcompensating these executives. The source of this overspending is likely because of mining being a capital intensive industry, which makes it easier to finance costs like these, and the fact that shareholder oversight is weaker in these firms due to the immaturity of the sector.
At the time of writing, Bitcoin’s price floats around $19.4k, down 13% in the past week.
BTC surges up following a plummet | Source: BTCUSD on TradingView
Featured image from Brian Wangenheim on Unsplash.com, charts from TradingView.com, Arcane Research
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Author: Hououin Kyouma