ALBANY, N.Y. — The cryptocurrency markets are already in a meltdown. Now New York is the on verge of becoming the first state in the nation to partially ban some energy intensive Bitcoin mining operations.
The move would have no immediate effect. But it still puts Gov. Kathy Hochul in the middle of a fight between environmental activists supportive of the measure and crypto enthusiasts who are demanding she veto the bill.
Hochul, a Democrat who is seeking her first full term this year, hasn't said what she’ll do with the proposal, which passed the state Legislature earlier this month. The measure would pause some permits for the energy intensive process used to earn digital currencies if the facilities are powered by fossil fuel plants that spew planet-warming gasses.
The debate, which has attracted the interest of numerous high-profile crypto backers — including New York City Mayor Eric Adams — has become a proxy war over the threat that government regulations could pose to the digital currency industry.
On one side are industry leaders, who are threatening to take their business to other states with energy-rich resources.
And on the other side are environmental groups, which are planning rallies and making the case that Hochul must sign the bill if she wants the state to achieve its ambitious emissions reduction targets.
The measure is "going to keep the state from going backwards on its climate goals by reopening old power plants,” state Assemblymember Anna Kelles (D-Ithaca), who sponsored the bill, said in an interview. “It’s common sense.”
Despite the narrowness of the bill, which exempts the only two such operations in the state, industry leaders, who are spending heavily on lobbyists in Albany, say the measure would send the wrong message to a growing technology sector and contend just the threat of the law is already causing companies to steer clear of New York.
“What's going to happen is the companies are going to think that well, they're going to come after us in other ways, too. So they're going to leave preemptively,” said John Olsen, a New York lobbyist for the Blockchain Association, which represents the cryptocurrency industry.
Industry officials are also concerned about other liberal states following suit and pursuing limitations on digital currency mining.
“We're watching Oregon and Washington very closely,” said Steven McClurg, chief information officer with Valkyrie Investments, which invests in Bitcoin and other digital assets.
“The success in New York, even just getting it through both houses, is certainly going to inspire others in similar states,” Olsen said. “It's merely the introduction and the socialization between legislators who like to glom on to issues and are trying to make a name for themselves on certain pieces of legislation.”
What the law would do
At issue is Hochul’s decision on a bill that passed the Legislature earlier this month in a hard fought victory for environmental groups after the sponsor of the measure in the state Senate railed against his colleagues for lacking the courage to act.
The measure targets the computing process underpinning Bitcoin and other popular digital currencies. The calculations needed to validate transactions grow more complex over time, increasing the amount of electricity needed to support mining operations.
Cryptocurrency miners have set up shop in parts of upstate New York. They’re drawn by relatively low-cost power upstate, readily available unused transmission infrastructure from abandoned industrial sites and a chillier climate that keeps the cost to cool the purpose-built computers down.
New York is not a leading state nationally for cryptocurrency mining, according to industry observers, but has been a contender in the Northeast and could be an attractive destination. The broader industry has also faced regulatory headwinds in the state on the financial side.
The two-year moratorium specifically targets permits for “proof of work” currency mining at fossil fuel plants. The roughly dozen operations that draw power from the grid, some of which have major expansion plans in the coming years, would not be affected. Individuals purchasing or mining for cryptocurrency are also not targeted, nor are any other blockchain activities.
In the Finger Lakes, the Greenidge plant, which was a pioneer in the U.S. of using an older fossil fuel plant that ran infrequently to provide electricity for homes and businesses to power cryptocurrency mining, would be able to continue operating if the bill becomes law. Digihost’s planned mining operation at a gas plant near Buffalo is also exempt.
That’s because the moratorium on new or renewed permits doesn’t apply if the company has already filed with the state Department of Environmental Conservation.
There are no public plans by other companies to repower or ramp up operations at old peaker plants scattered across upstate New York for Bitcoin mining, and Perianne Boring, the founder and CEO of industry group the Chamber of Digital Commerce, said she’s not aware of any members with such plans.
But despite this limited scope, Boring and others warn that New York is already scaring off the industry. There’s concern that more restrictions are on the horizon if Hochul signs the moratorium. The bill also requires a study by the DEC of the environmental impacts of the industry, including whether it imperils achievement of the state’s climate goals.
“Once a moratorium is put into law, usually, they hardly ever end,” Boring said. “It has that impact of sending a lot of negative and fearful signals to the Bitcoin industry, who will leave the state.”
Sen. Kirsten Gillibrand, who has waded into the debate on regulating cryptocurrency with a recently introduced bill, has not publicly taken a position on the proposed moratorium. Gillibrand has urged additional scrutiny of Greenidge's permits but has not sided with advocates who want to shutter the plant.
A 'pragmatic' law
Arguments about the “message” of the bill and broader effects on decisions by blockchain and decentralized finance companies have won the industry powerful allies in making the case to Hochul, including the New York City mayor.
Adams recently endorsed Hochul after a drawn out process. Two days before the announcement, he told Crain’s New York that he’d ask her to veto the moratorium bill. He's a supporter of the industry, taking his first paychecks in Bitcoin when he took office this year. He also flew to a retreat in Puerto Rico last year on the private jet of crypto-billionaire Brock Pierce.
“When you look at the billions of start-up in money that’s invested in crypto, it’s in New York, and so if we continue to put barriers in place, then we are going to hurt the bottom line,” Adams said at an unrelated news conference later in the day after he backed Hochul. “I want this industry to grow — crypto, blockchain, all of these new technologies, we want them to grow here in the city.”
Supporters of the moratorium do generally support a complete ban on the energy-intensive type of cryptocurrency mining underlying Bitcoin. The scaled back version of the bill was a compromise to get it passed and lessen labor groups' opposition.
“Regardless of what the supporters of this bill want, this bill is what’s on the table,” Kelles said. “This bill is very, very pragmatic. It is requiring the collection of data and any move forward would be based on significant data and study.”
New York is grappling with how to achieve a 40 percent reduction in emissions from 1990 levels by 2030 and an 85 percent reduction by 2050. That likely means electrifying everything possible and ramping up zero-emissions electric generation.
Environmental advocates aligned against the cryptocurrency mining industry argue there’s no room for a new, energy-sucking industry that they see little benefit in because renewable electrons will be needed to power cars and heat homes.
The cryptocurrency industry has argued that it could provide an additional revenue stream for new renewable projects, lessening the cost of achieving the state’s climate goals. Nothing in the moratorium would prevent such a project.
Kyle Schneps, the director of public policy at Rochester-based Foundry, a Bitcoin mining company, said renewable developers considering that model have been spooked by the prospect of additional regulations. Foundry opposed the moratorium and provides support and services to miners.
While Hochul considers her options, her administration will face entreaties and public pressure from both sides of the issue.
The battle over the bill’s passage was a bonanza for some longtime Albany lobbying firms as the industry staffed up.
The cryptocurrency industry, including individual companies and trade groups, spent more than $250,000 on outside lobbyists in March and April, according to public filings in New York. That does not include activity by labor or groups with on-staff lobbyists who opposed the bill. The Club for Growth, the conservative Washington group, also spent on ads and text messages to oppose the bill.
Meanwhile, the sole outside lobbyist working in support of the moratorium reported $30,000 in compensation from environmental groups during the same period. That doesn’t include work done by staff at Earthjustice, the New York Public Interest Research Group, Sierra Club, Alliance for a Green Energy Economy and other supporters. Seneca Lake Guardian, a group that backed the moratorium as part of its effort to shutter Greenidge, also hired Pythia Public Affairs for press work.
Another industry concern is the precedent of the state targeting one specific technology for regulations. The DEC already has the authority to deny permits if companies do not comply with the state’s climate goals; an Orange County judge in the Hudson Valley, for example, recently ruled in the state's favor to deny a power plant seeking to repower with more efficient gas turbines.
Also looming: Hochul’s administration has deferred a decision on the permit for Greenidge until shortly after the June 28 gubernatorial primary. Her more progressive primary opponent, New York City Public Advocate Jumaane Williams, has pushed for her to reject the renewal on the basis that it conflicts with the state’s climate goals.
There’s less clarity on when Hochul might decide on the moratorium bill, and it has become an increasing campaign issue. She’s played coy on her deliberations when asked, noting there are many bills that must be considered before the end of the year and declined to commit to signing.
“We have to be very cautious about allowing more facilities going into formally closed fossil fuel generating plants. We have a different situation where some may be generating hydroelectric power, for example,” Hochul said during the Democratic gubernatorial debate June 7.
“I need to be able to examine the differences, but I’m not interested in doing anything to harm the environment."