Between Climate and Crypto

Between Climate and Crypto

By FOCUS, a Leonine Business

On September 8, the White House Office of Science and Technology Policy (OSTP) released a new report on the climate and energy implications of crypto-assets in the United States. It’s the latest response to President Joe Biden’s executive order from March on the development of digital assets in the country. The OSTP report suggests a broad policy push to reduce the environmental impact of crypto, specifically crypto mining, as it makes a significant contribution to energy usage and greenhouse gas emissions. Crypto mining is the process by which a network of computers generates new cryptocurrency through the use of electricity to verify online transactions. Worried the rapid growth of crypto-assets may hinder the country’s commitments to reach net-zero carbon pollution, the OSTP recommends performance standards targeting high energy-consuming, proof-of-work cryptos like Bitcoin and offers guidance to “ensure the responsible development of digital assets” via federal monitoring and regulation.

In addition to responsible innovation, President Biden’s executive order called for federal examination of digital assets as they relate to consumer and investor protection, financial stability, financial inclusion, the United States’ global financial leadership, and combating illicit financial activity. The Justice Department released a report on strengthening international law enforcement in June. The Treasury Department also delivered one of four reports in July, outlining a framework for interagency engagement with foreign counterparts. The Treasury is expected to highlight the economic danger of cryptocurrencies and advocate for strong oversight in the coming reports due this month. As reported by The Washington Post, the Treasury’s assessments conclude that cryptocurrencies do not yet pose a stability risk to the broader financial system, but that may change.

While the federal government works to catch up, states have been regulating the booming crypto industry since 2014. This year nearly 75 percent of state legislatures addressed digital assets; 44 states and the District of Columbia introduced bills on the subject and 29 states and the District of Columbia enacted crypto related legislation. In New York, pending legislation gained national interest due to the precedent it may set for regulating the industry.

New York SB 6486D would establish a two-year moratorium on cryptocurrency mining that would prevent the approval of any new permits for new cryptocurrency mining plants. The legislation specifically targets the proof-of-work cryptos and would subject crypto operations to an environmental impact review. The legislature passed the bill before adjourning sine die on June 2. Democratic Gov. Kathy Hochul hasn’t said if she will sign or veto the bill, which according to Politico, became a proxy war over the threat of environmental regulations on the cryptocurrency industry. Governor Hochul’s position between climate and crypto is one that we will be seeing a lot more of in the upcoming session.

The wide-reaching implications of crypto are reflected in the efforts of various federal agencies with potentially conflicting priorities to examine their risks and benefits. As the reports continue to roll in, FOCUS will continue to monitor whether they offer contradictory guidance, whether the guidance will affect legislation that is already pending governor approval, and whether the guidance will shape the influx of state crypto legislation expected in quarter one of 2023.