The data shows that public Bitcoin mining companies have spent more on administration, compared to other industries such as gold mining.
The average public Bitcoin miner spends 50% of revenue on administrative costs
According to a new Arcane Research blog post, most BTC miners have only focused on minimizing direct production costs and neglected indirect expenses such as administration.
“Administrative costs” here refer to expenses incurred by businesses that are not directly related to revenue generation. Examples of these costs include stock compensation and executive pay.
“Direct production costs”, on the other hand, include the salaries of mining operations staff and electricity-related costs. These two expenses offset the two main types of expenses faced by Bitcoin miners.
Here’s a chart showing what 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 from the chart above, public Bitcoin mining companies have kept their margins around 60% to 80% over the past few years, suggesting that they have been good at minimizing their direct costs related to production.
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 inevitable, it seems that the best way for miners to improve their profits is to reduce administrative costs.
However, as the chart below shows, public Bitcoin mining companies have spent heavily on these expenses since 2021.
The high revenue percentages spent on administration by the miners | Source: Arcane Research
From the graph it is clear that public miners have spent an average of 50% of their income on administrative costs alone.
Marathon spent even more than the rest of the market, paying administrative expenses with 97% of its total revenue in the past two years.
The company’s generous stock-based compensation program for executives is why the company has been cutting almost all of its income from administration.
Some companies, however, have been much better at minimizing these costs. Argo managed to keep these expenses to just 16% of its total revenue.
A look at a comparison with other industries such as the oil and gas industry and gold mining reveals that Bitcoin mining companies have spent much more 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 for this discrepancy lies in the fact that the Bitcoin mining industry is still relatively immature and, as such, its revenue is still quite low.
Companies have been hiring experienced executive teams with future growth goals in mind and thus have needed to offer highly competitive packages.
However, the publication notes that the mining industry is still massively overcompensating these executives. The origin of this overspending is likely because mining is a capital-intensive industry, which makes it easier to finance costs like these, and the fact that shareholder oversight is weaker in these companies due to the immaturity of the sector
BTC Price
At the time of writing, the price of Bitcoin is hovering around $19.4 million, 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
