By The Numbers: How Bitcoin Mining Stacks Up Next To Gold & Oil
The Bitcoin mining industry has now grown to the point where it is being measured against other similar industries that have been around for a long time. However, the operations of Bitcoin mining firms are very different from these established product-based companies. Most obvious is the way these companies manage their revenues in terms of administrative costs, which differ widely between mining companies and other commodity-based companies.
Bitcoin miners cost a lot
Public Bitcoin miners have been shown to spend a large portion of their revenue on administrative costs. Looking at the spending patterns of other established commodity-based companies, Bitcoin miners are spending a very large percentage on administration.
The average share of revenue spent by Bitcoin miners on administrative costs comes in at around 50%, although this is an industry-wide average. Some have been able to reduce their administrative expenses while others have been seen spending almost all of their revenue on it.
BTC mining firms spend more of their revenue | Source: Arcane Research
A comparison between Bitcoin mining, gold mining, and the oil and gas industry shows a big disparity here. In the oil and gas industry, the average cost of administrative expenses came in at 2%, while administrative expenses in the gold mining industry came in at 3%.
Why are they spending so much?
Bitcoin mining companies are spending so much on administration partly because of their young age. Unlike their counterparts in the gold mining and oil and gas industries, they did not have time to strike a balance sheet where a small portion of revenue was spent on administrative costs.
Marathon Digital is a miner that uses almost 100% of its earnings. Last year, the company reported revenue of $266 million, and $259 million in administrative expenses. The company offers a generous stock compensation program to its top employees, and given that these executives were able to achieve all growth targets for the year, the company had to spend $161 million of revenue on stock compensation for its executives alone.
BTC trending above $19,000 | Source: BTCUSD on TradingView.com
At the other end of the spectrum, some miners have been able to reduce their administrative costs. Argo Blockchain was able to reduce its administrative costs to 16% of its total revenue from 2021, one of the lowest in the space.
Another reason is that the companies are so young, and stakeholders have little oversight of the companies And because it’s a capital-intensive industry, they’re able to pay this huge executive stock compensation. However, as the industry becomes more mature, greater shareholder oversight is expected, thereby placing a constraint on how much revenue is spent on administrative costs.
Featured image from TechSpot, charts from Arcane Research and TradingView.com
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