Report: Bitcoin mining companies spend too much on administration compared to other industries

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% revenue on administrative costs

According to a new blog post from Arcane Research, most BTC miners have only focused on minimizing direct production costs, neglecting indirect expenses such as administration.

“Administrative costs” here refers to expenses incurred by companies that are not directly related to revenue generation. Examples of such costs include share compensation and executive pay.

The “direct production costs”, on the other hand, include wages for the mining staff and electricity-related costs. These two expenses make up the two main types of expenses that Bitcoin miners suffer.

Here is a chart showing how the BTC mining production margin has been since 2021:

Looks like Argo had 80% margins during the period | Source: Arcane Research

As you can see in the graph above, public Bitcoin mining companies have maintained their margins around 60% to 80% over the past few 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 operations, 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 their administrative costs.

However, as the chart below shows, the 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 earnings on administrative costs alone.

Marathon spent even higher than the rest of the market, paying off administrative expenses by 97% of their total revenue over the last couple of years.

The company’s generous executive compensation program is behind why the firm has lost almost all of its income in administration.

However, some companies 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 behind this discrepancy lies in the fact that the Bitcoin mining industry is still relatively immature, and as such, its earnings are still quite low.

Companies have hired experienced management teams with future growth targets in mind, and have therefore needed to offer highly competitive packages.

But the post points out that the mining industry is still massively overcompensating these executives. The source of this overspending is likely due to the fact that mining is a capital-intensive industry, which makes it easier to finance costs such as these, and the fact that shareholder oversight is weaker in these firms due to the immaturity of the sector.

BTC price

At the time of writing, Bitcoin’s price is hovering around $19.4k, down 13% in the last 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