NYDFS Expresses Concern Over Bitcoin Mining & Climate Change

The New York Department of Financial Services (NYDFS) has sent out a letter to several financial institutions warning against Bitcoin mining and climate change risks.

The Oct 29 letter, which is signed by Superintendent Linda Lacewell and addressed to the heads of these institutions, specifically mentions crypto mining as a risk factor.

In 2019, the NYDFS joined the Network of Central Banks and Supervisors for Greening the Financial System (“NGFS”). The body describes itself as,

“a group of central banks and supervisors willing, on a voluntary basis, to share best practises and contribute to environment and climate risk management in the financial sector.”

Central Banks and Climate Change

In the letter, Lacewell revealed that the NYDFS recently hired Dr. Yue Chen to serve as its first-ever Director of Sustainability and Climate Initiatives.

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In this role, she is to engage with industrial and regulatory stakeholders to develop a best practice framework for New York’s financial industry to navigate environmental issues.

Critics have pointed out that the NYDFS lacks the regulatory teeth to adequately pursue any such agenda because the law does not give it any such powers.

However, the regulator believes that the risk to property and business activities posed by natural disasters and weather events is enough to warrant its attempts to intervene directly.

An excerpt from the letter reads:

“[Climate change] could negatively impact the balance sheets of Regulated Non-Depositories through adverse impact on the businesses of their customers, including their loss of income, as well as any devalued investments due to physical or transition risks.”

Conflicting Messages About Bitcoin Mining

The letter specifically mentions bitcoin mining as a risk factor for climate change. It cites reports claiming that the energy used to maintain the bitcoin network’s hashrate is equivalent to Venezuela’s total electricity consumption and has a carbon footprint the size of New Zealand’s.

However, it then appears to contradict itself by pointing out that it’s difficult to accurately estimate the amount of energy used to mine bitcoin due to location-dependence.

In China’s Sichuan Valley region, for example, bitcoin mining operations are popular due to the availability of vast amounts of cheap hydropower, which has a much softer environmental impact than burning fossil fuels.

The letter further mentions that cryptocurrency mining’s environmental impact is “relatively small compared to sectors such as transportation.”

It then recommends that crypto miners should be more forthcoming about information that could be considered trade secrets, such as mining locations and equipment used.

The letter continues:

“Virtual currency firms should consider increasing transparency of the location and equipment used in bitcoin mining to help alleviate these concerns. It is also reported that the energy cost for mining virtual currencies is sizable compared to the value of the virtual currencies. […] These estimates, of course, do not take into account the electricity needed to power the storage, trading, and tracking of virtual currency necessary to keep the industry operating.”

Concluding the segment on crypto mining, the letter explains that data suggests some crypto miners are making strides in sustainable energy sourcing to mitigate the implicit environmental risk their activities hold.

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