New York is trying to become the U.S.’s “crypto capital.” Major cryptocurrency companies are hiring an army of lobbyists to influence that outcome.
New filings show that Digital Currency Group, Blockchain.com, and roughly a dozen other firms are spending upwards of $100,000 a month in a $1.5 million Albany lobbying blitz aimed at helping to write the rules governing the $2 billion crypto industry, which remains mostly unregulated at the federal level.
Even firms like eToro, which don’t yet operate in New York, are staffing up in Albany because laws written there could impact legislation across the U.S.
New York is home to some of the toughest financial watchdogs in the world and crypto companies are conscious of the lessons learned by technology companies like Airbnb Inc. and Uber Technologies Inc., which have tussled with New York regulators over the years.
They’re also mindful of New York’s already onerous crypto licensing requirements and fear that states with fewer regulations, such as Texas, could lure companies there instead.
On New York’s cutthroat political stage, “we have to have a seat at the table,” said Lane Kasselman, chief business officer at crypto trading platform Blockchain.com.
That’s especially important as New York and other states ramp up efforts to write new rules around crypto, Kasselman said, noting that among the crypto legislation that Blockchain.com is tracking, 96 bills were introduced in the U.S. in the first six weeks of 2022. “In 2021, there were 13 bills introduced in the U.S. related to crypto,” Kasselman said.
New York lawmakers are publicly embracing crypto technology as a way to boost an economy still reeling from the pandemic and Wall Street’s shrinking footprint. “Does New York want to be the center of the next great financial system or give it up to Miami or San Francisco?” Kasselman said. “What’s at stake? The best and brightest are leaving.”
In the Lead … for Now
New York and San Francisco have the largest shares of crypto specialist jobs, but other hubs are sprouting.
New York City Mayor Eric Adams, who declared before he took office in January 2022 that he’d take his first three paychecks in cryptocurrency, has staked a claim at making the city “the center of the cryptocurrency industry.”
Adams has since partied with crypto billionaire and Galaxy Investments CEO Mike Novogratz and hitched a ride to Puerto Rico on the jet of crypto entrepreneur Brock Pierce. He’s appeared at industry devotees’ meet-ups and explained the intricacies of Ethereum and Bitcoin.
The enthusiasm has been contagious. “There’s so much investment, activity and scrutiny in the industry recently that a lot of firms are realizing it’s time to get off the sidelines,” said Eric Soufer, who launched a new fintech and crypto lobbying practice in January for Tusk Strategies.
Tusk Strategies is owned by Bradley Tusk, a longtime political strategist who ran campaigns for former New York mayoral candidate Andrew Yang and former Mayor Michael Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.
Tusk Strategies also represented Uber when the car-sharing service launched in New York City in 2011, and Soufer said the parallels are clear: “If you want to have a role in shaping the trajectory of crypto regulation — not just on the state level, but also on the federal level — you need to engage and demystify the space.”
There’s been little indication on where New York Governor Kathy Hochul stands on crypto — whether it be front-office cryptocurrency operations or bitcoin mining. Crypto businesses say one potential bright spot is Adrienne Harris, the former Obama Administration official that Hochul named as the state’s new superintendent of the Department of Financial Services, New York’s top regulator for the industry.
Harris served as a board member for the Digital Dollar Foundation, a group advocating for a U.S. central bank digital currency.
So far, most of the attention in Albany has focused on the environmental impact of bitcoin mining, an energy-consuming, lightly regulated practice that has boomed on U.S. shores since China’s 2021 crypto-mining ban.
In a closely watched case seen as a bellwether for how strictly the state might regulate crypto mining, New York’s Department of Environmental Conservation is expected to issue a key decision in March on whether to continue to allow mining operations at the formerly decommissioned power plant operated by Greenidge Generation Holdings Inc.
Located on Seneca Lake in New York’s Finger Lakes region, Greenidge is a coal power plant bought by private equity firm Atlas Holdings LLC that was turned into a natural gas-burning plant. By 2020, it became a 24-hour Bitcoin-mining operation. The plant has applied to renew an air-emissions permit and environmental activists and the cryptocurrency industry have been monitoring the public debate.
This “relatively new, little understood industry is destroying our climate because it’s so energy intensive,” said Yvonne Taylor, vice president of Seneca Lake Guardian, an environmental activist group. “Outside speculators are flocking to New York because it’s like the Wild West here without any oversight,” she said.
There’s also been extensive lobbying on legislation that would impose a moratorium on all crypto-mining operations statewide, as well as more than 20 bills introduced as of mid-February related to the industry on topics ranging from fraud to the use of blockchain technology in elections. There were 16 crypto-related bills introduced in New York in all of 2021.
In a sign of the divergence of political support, Mayor Adams this month proclaimed that “I support cryptocurrency, not crypto mining,” in an appearance in front of state lawmakers. And businesses without direct mining operations are concerned the conflicts over mining will spill over into other parts of the business, such as trading and other front-office businesses.
“Mining sucks up all the oxygen and crypto gets defined by mining,” said Soufer, of Tusk Strategies.
Crypto businesses outside of mining say they view their lobbying efforts as a pre-emptive strike. “It is for us to be involved as regulation continues to be developed and created,” said Lule Demmissie, chief executive officer of eToro USA, an Israel-based company that’s set to go public through a SPAC merger with Betsy Cohen-backed FinTech Acquisition Corp. V.
It’s also a way to avoid the fate tech companies like Facebook and Google have faced, where televised congressional hearings show lawmakers baffled by some of the most basic tech jargon.
“The technology is hard,” said Dan Burstein, U.S. general counsel at Paxos, a regulated blockchain infrastructure platform. Teaching politicians and policy makers about crypto is one way to influence future legislation. It’s also a way to ensure that their companies don’t get inadvertently swept up into legislation in case the language being used to craft bills isn’t precise enough.
“They see what’s in the market now, but not what’s coming and they may not be considering future risks to the financial system,” Burstein said.
For instance, some companies have hired lobbyists to push for changes to New York’s BitLicense, which was created in 2014 and regulates crypto companies that reside in — or have customers in — the state. Some companies want the state to relax the licensing requirements to make it easier for smaller crypto companies to comply.
Exchanges aren’t allowed to operate in New York without a BitLicense and only licensed companies can offer certain approved coins in the state. Roughly half of the 157 coins supported by Coinbase, for example, are not available to New Yorkers to trade.
“If you’re a younger, newer cryptocurrency project — it takes a while to get on those exchanges,” said Gene Hoffman, chief operating officer at Chia Network, a blockchain network founded by BitTorrent creator Bram Cohen. The crypto industry is “radically different” than when the BitLicense was originally created and “it’s time to take a fresh look and modify it,” Hoffman said.
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