The Bitcoin mining industry has become a digital wild west, a digital gold rush powered by code and electricity. Beneath the surface of technological innovation lies a growing problem: executive compensation that's completely detached from reality. Pay packages are approaching CEO-levels at Fortune 500 companies. Meanwhile, these companies have been building cash piles and diluting shareholder value at breathtaking pace. Quite honestly, no one is willing to address the real elephant in the room.

Are We Building Castles on Sand?

Bitcoin mining executives in the US are raking in far more than their counterparts in established sectors like IT and energy. I understand, Bitcoin is a young industry. Do we want to continue to incentivize the highest paid execs as if they’re producing the next Apple? At the same time, the foundations of their work continue to be laid.

  • 79-89% of executive compensation is equity-based
  • $6.6M to $14.4M Average miner NEO salaries & bonuses increase from 2023 to 2024

This isn’t purely about jealousy, but rather long-term sustainability. Executives are sometimes incentivized to demand these by means of short-term ballooning stock price through ferocious growth or cooking the books. So what will you do when the market inevitably decides to correct itself? What if the halving hits a little too hard? What will they do when the regulatory hammer eventually falls?

These executive pay packages have been met with striking shareholder rebukes. Approval rates average a dismal 64%, compared to a significantly higher 90% approval rate for S&P 500 and Russell 3000 companies. This is not a petty complaint, this is a klaxon warning that something is fundamentally broken. That would be a good, loud signal. Now the simple truth is the owners of these companies—increasingly people like you and me—are losing confidence in the executive leadership.

Think of it like this: it's like building a magnificent castle on a foundation of sand. That sounds pretty amazing at first blush. Sooner or later, the tide will go out, and all those naked swimmers are going to flop to the ground.

The Unintended Consequences Are Huge

The issue with excessive exec pay isn’t only about the short-term fiscal hit. This creates an environment of short-termism. To continue enriching themselves executives favor their short-term personal financial returns over the long-term well-being of the company. This can lead to a number of unintended consequences:

  • Shareholder revolts: Disgruntled shareholders are more likely to challenge management decisions, leading to instability and uncertainty.
  • Regulatory scrutiny: Excessive pay packages can attract unwanted attention from regulators, who may see them as evidence of corporate greed or mismanagement.
  • Talent flight: If shareholders lose faith in the leadership, talented employees may jump ship, leaving the company with a leadership vacuum.

Don’t disregard the erosion of shareholder value. As with other sectors, a large share of executive compensation in the Bitcoin mining industry is equity-based. This practice results in all of the existing shareholders having their ownership stake diluted. It’s akin to cutting a pizza into an increasing number of slices – each person gets a smaller share.

In 2024, Riot Platforms CEO Fred Thiel granted—which essentially functioned as pay instead of performance—a jaw-dropping $79.3 million equity award. Market cap growth Riot has seen outstanding market cap growth. When 73% of that increase is awarded to named executive officers, concerns about fairness and proportionality are magnified. TeraWulf and Core Scientific, in contrast, barely disbursed 2%. Whether or not this is a sustainable model, that will remain to be seen, or a recipe for disaster.

Time for a Reckoning, or a Revolution?

The Bitcoin mining industry finds itself at a pivotal point. You have the opportunity to stop the tide of runaway exec pay going unchecked. Or, you can choose a better model—one that is far more sustainable and equitable. The choice is ours.

VanEck’s recommendations are excellent and thorough. They recommend linking bonuses to the expected cost per coin mined, including measures of capital efficiency, and increasing performance thresholds for equity-based awards. We need to go further. We should all expect more transparency and accountability from our corporate leaders.

We need to ask ourselves: are these executives truly creating long-term value, or are they simply enriching themselves at our expense?

And the answer, I sadly predict, is the inconvenient truth that nobody wants to hear. And if we don’t, the digital gold rush will surely reach an equally spectacular bust. And this is all just Bitcoin, folks. It’s more than just the visionary image of the industry’s future or the faith we all want to put in the industry’s leaders. We demand that reckoning, before it erupts into revolution.