By The Numbers: How Bitcoin Mining Stacks Up Next To Gold And Oil
The Bitcoin mining industry has now grown to the point where it is being measured against other similar industries that have been around longer. However, the operations of the bitcoin mining companies of these established commodity-based firms are very different. It is most evident in the way these companies manage their earnings with respect to administrative costs, which differ greatly between mining firms and other commodity-based firms.
Bitcoin miners spend too much
Public bitcoin miners have been found to spend a much larger portion of their earnings on administrative costs. Looking at the spending patterns 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 came out to about 50%, although this is an industry-wide average. Some have been able to reduce their administrative expenses while others have been found to spend almost all of their income on this.
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 difference here. In the oil and gas industry, the average expenditure on administrative costs amounted to 2%, while the administrative costs of the gold mining industry came to 3%.
Why do they spend so much?
Bitcoin mining companies spend so much on administration in part because of how young they are. Unlike their counterparts in the gold mining and oil and gas industries, they have not had time to break even where their administrative costs will cost only a small fraction of their revenue.
Marathon Digital is a miner that spends almost 100% of its earnings. In the past year, the company reported revenues of $266 million, and $259 million had been spent on administration. The company offers a generous stock compensation program to its top employees, and given that these executives had been able to meet all growth targets for the year, the company had to spend $161 million from earnings on stock compensation for its executives alone.
BTC trending above $19,000 | Source: BTCUSD on TradingView.com
On the other end of the spectrum, some miners have been able to reduce their administrative expenses. Argo Blockchain was able to reduce its administrative costs since 2021 to 16% of total revenue, one of the lowest in the area.
Another reason is that the companies are so young, and stakeholders have very little oversight of the companies. And since it is a capital-intensive industry, they are able to pay out these substantial executive stock compensations. However, as the industry becomes more mature, more shareholder oversight is expected, leading to a breakdown in how much revenue is spent on administrative costs.
Featured image from TechSpot, charts from Arcane Research and TradingView.com
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