Most Public Bitcoin Miners Have “Never” Profited: Why?

Volatility has been the name of the game for the past couple of days. During the early hours of Monday, the top tokens of the crypto market began to lose their value. As a result, at press time, the crypto market capitalization was exactly $900 billion, down 8% compared to Sunday. The biggest crypto-Bitcoin, on the other hand, was down 7% in the same time frame.

Apart from traders and investors, the drop in the price of Bitcoin is also affecting miners. When miners have to pay for expenses, they usually sell Bitcoin HODLings, as that is their main source of income.

Outlines the costs of Bitcoin miners

According to a recent Arcane Research report, some public Bitcoin miners spend more than half of their earnings on administrative costs. As illustrated below, a majority of public bitcoin miners have spent between 20% to 50% of their earnings on administration since last year.

But towards the end of both sides of the spectrum are companies with an effective and ineffective cost-cutting strategy. Agro, on the one hand, has diverted only 16% to administrative expenses. Marathon, on the other hand, has ended up spending almost all of the proceeds [approx. 97%] administration costs since 2021.

Per Marathon’s annual report from last year, administrative costs (SG&A expenses) made up a large part. The breakdown of the same into various sub-headings such as compensation and taxes, consultancy and professional fees and general expenses and admin expenses are illustrated below.

Looking from the investor’s lens

Over the years, investors have understood why it is not a good idea to put all your eggs in one basket. So apart from directing funds towards Bitcoin, they have also considered other investment vehicles that give them indirect exposure to crypto. Alongside various mutual funds, mining company shares have proven to be quite a compelling alternative.

So from an investor’s perspective, it is important to know how much revenue a Bitcoin company spends on administrative costs, because it directly affects the mining stock prices and the returns they will collect.

Second, costs incurred indirectly help shape the buy/sell trend in the Bitcoin market. In order to meet say $X of costs, miners will have to spend more coins in bearish phases, adding to the selling pressure in the BTC market. The same usually has an effect on investor sentiment and the price of the asset. So, at the end of the day, it is quite crucial for companies to cut costs.

The same has actually weakened the profitability aspect of businesses as well. Arcane Research’s report concluded by highlighting the same,

“Most public miners have never profited, even after the super-profitable 2021, partly because of their high administrative costs.”