The State of Bitcoin Mining — New York

Block Green
14 min readMay 3, 2023

Powering Through: A Report on New York’s Resilient Bitcoin Mining Industry Amid Regulatory Challenges

Contrary to popular belief, New York State expanded its mining capacity in 2022 and remains one of the most important mining states. This report will cover topics including the electricity market, regulatory history, mapping of public mining sites, electricity mix, and exposure to natural gas.

New York’s Deregulated Power Grid

The power grid in the United States is a complex network that varies greatly from state to state. The energy market also exhibits significant disparities depending on whether it operates under a regulated or deregulated framework. In this context, let’s take a closer look at New York State, which operates a deregulated gas and electricity market.

In New York State, the grid and wholesale electricity markets are managed by an independent system operator called NYISO. The state has adopted a system similar to that of Texas, relying on the “marginal price setter principle” to establish electricity prices.

The marginal price setter principle is used to determine the price of electricity in a competitive auction structure. Generators with the lowest marginal costs bid to supply the market, and the NYISO calculates the price of electricity by evaluating these bids to meet the expected demand. The clearing price is then determined by the marginal cost of the last power plant selected to meet demand, and each supplier selected earns this price.

Legal History

In the last few months, and even more broadly in recent years, New York regulatory officials have been reactive, regarding the Bitcoin mining industry. New York state is resource-rich and is theoretically an attractive home for ASIC miners. However, the industry has come under increased scrutiny due to concerns about the potential environmental impact of mining operations.

Regulatory officials are closely monitoring the Bitcoin mining industry in New York to ensure that it does not harm the environment, despite the availability of cheap and plentiful hydro energy. Their concerns about potential environmental harm are wide-ranging including noise and potential pollution.

Tracking the state’s legal history depicts the following changing conditions and key trends for miners:

2018

March — 36 municipal power authorities in upstate New York filed a petition against the increasing presence of mining firms, leading the New York State Public Service Commission to permit these authorities to charge higher electricity rates “for high-density loads that exceed 250 kWh per square foot per year.”

2021

May — Senator Kevin S. Parker introduced a bill proposing a three-year moratorium on the mining industry in New York to evaluate the environmental impact of mining facilities. Miners would have been required to shut down their operations during the research phase until the completion of the environmental impact statement. However, the bill ultimately failed.

2022

January — The Greenidge power station faced controversy over its use of natural gas, which led to a threat of a shutdown. The state’s Department of Environmental Conservation postponed its decision on whether to permit Greenidge Generation to continue mining operations in Dresden.

April — Greenidge won a ruling from the New York Supreme Court to continue its operations, with the judge determining that the project “would not have an adverse impact on the air or water of Seneca Lake.”

June — Governor Kathy Hochul of New York signed a two-year moratorium into law on proof-of-work mining operations. This moratorium will halt the issuance and renewal of air permits for mining sites that rely on carbon-based fuel and assess the environmental impact of mining operations, but it is less strict than previous proposals.

September —Bit Digital was instructed by the city of Niagara Falls to halt its hosting operations at the Blockfusion facility until it complies with the Zoning Ordinance.

2023

February — Digihost completed the acquisition of a natural gas power plant in North Towanda, two years after initiating the purchase plan. However, in response, environmental groups filed a lawsuit in the Supreme Court of Albany County.

April — U.S. Bitcoin Corp. reached a settlement with the city of Niagara Falls to resume its mining operations after the power plant was ordered to stop its activities in March due to noise complaints. The company will have to comply with the new zoning laws as part of the agreement.

April — Blockfusion’s application to obtain their high-energy use operating permit was met with no opposition at the Niagara Falls Planning Board hearing. The request will now undergo review by the Falls Zoning Board of Appeals of the city council.

Despite being theoretically attractive for Bitcoin miners due to its resource-rich environment and cheap hydro energy, New York has become an inhospitable place for them due to a prevalence of zoning issues suggesting certain sites are closer to the local population. Compared to many other states we note a prevalence of the zoning issue faced by New York miners, indicating a closer proximity to the local population of certain sites.

This negative environment was compounded by the recent moratorium on proof-of-work mining, which some industry insiders believe sends a negative signal to stalwarts and undermines the state’s attractiveness to crypto miners.

Alex Martini, CEO of BlockFusion, warns that the moratorium could limit expansion of crypto mining in New York and accelerate the move to more supportive jurisdictions like Texas or Oklahoma.

“Although the bill is quite limited in its scope, it will project an image of New York being ‘anti-bitcoin’ so it will likely limit any expansion of crypto mining in the state and accelerate even more the move to other jurisdictions, like Texas or Oklahoma, where there is strong political support for miners.”

Distribution of Miners

The hostile regulatory landscape in New York State raises the question of whether there are still some miners willing to weather the storm. It may come as a surprise, but New York was one of the first states to welcome miners into the country.

As of Q4 2022, our research shows a total capacity of 211MW online and securing the network. While it only accounts for 8.51% of MW capacity deployed in the United States, New York ranks third behind Texas (51.38%) and Georgia (13.23%).

At the time of writing, our research suggests the state of New York is filled with untapped potential. If regulators are presented with new information, they should consider taking a closer look at potential positive externalities from securing the Bitcoin network.

Despite the challenges faced by Bitcoin miners in New York State, it may be surprising to know that the state was one of the first to welcome miners in the country. Currently, our research shows a total capacity of 211MW as of Q4 2022. Although it accounts for only 8.51% of the MW capacity deployed in the United States, New York ranks third, behind Texas at 51.38% and Georgia at 13.23%. As of now, our research below suggests that the state of New York still holds untapped potential for the mining industry.

It’s important for regulators to consider the potential positive externalities that Bitcoin mining can bring. The Bitcoin Policy Institute and others have highlighted many of these positive aspects, and regulators should take a closer look at them.

By doing so, they may find that the benefits of mining outweigh the potential risks, and they may be more willing to work with miners to create a regulatory environment that is conducive to the growth of the industry.

Currently, industrial-scale public companies energize ASICs at six sites, with an inclination towards co-mining or hosting.

Data Source: EIA, Investor Presentations

Notably, in Massena, three different miners including Sphere 3D, Bit Digital, and CleanSpark have secured hashrate capacity at the Coinmint facility.

Bit Digital intends to continue mining at the Blockfusion facility in Niagara Falls despite the moratorium in October and also operates at the Digihost facility in Buffalo with plans to expand its activities at Digihost’s new power plant in North Towanda.

In Lake Mariner, TeraWulfs hosting activities account for around 33% of the total hashrate deployed (Q4 2022), and Greenidge is exclusively dedicated to self-mining in Dresden as far as we know.

The New York mining landscape can be characterized by two key elements: geographic concentration and energy source. Miners are primarily located in the extreme West or North, and their operations are dominated by hydro and natural gas.

The state’s vast amount of hydro energy is especially attractive to miners, who are mostly situated near hydroelectric dams, such as the Robert Moses Niagara hydroelectric power plant with a 2,500MW capacity in Niagara Falls or in Massena in the north.

However, some sites rely on grid power or behind-the-meter natural gas, such as Greenidge in Dresden and Digihost in North Towanda, which increases their regulatory risk and sensitivity to natural gas price changes.

Concentration in the West and North, where five out of six mining sites are located, is also notable, as these areas offer the most affordable electricity rates according to grid data. With such vast hydro resources in Western New York, state regulators are missing an opportunity to lead the dynamic industry in the United States.

Hashrate Deployed

Despite the political pressure for Bitcoin miners in New York, the state has seen a significant increase in hashrate, which grew by 68.91% in 2022, surpassing the global growth rate of 41.40%. As a result, New York’s hashrate rose by more than 2.77EH/s. However, the rate of growth has decelerated since Q2 2022.

Data Source: Press releases, SEC Filings, Investor Presentations

Bit Digital’s hashrate experienced a significant decline of 26.58% from Q3 to Q4 2022, primarily due to the shutdown of Blockfusion infrastructure in October 2022, which drove the hash rate reduction. Furthermore, Bit Digital faced a power cut-off in North Towanda earlier in the year due to additional permits required by local authorities.

Meanwhile, Digihost’s bitcoin production slightly increased with the deployment of 0.27EH/s throughout the year, but their hashrate was delayed due to the acquisition of its natural gas power plant in North Towanda, awaiting approval from the Public Service Commission.

In Massena, CleanSpark increased the hashrate by deploying additional miners, totaling 1.5EH/s, along with Bit Digital’s deployment at the Coinmint data center.

Additionally, Sphere 3D also plugged in a first batch of miners with a 1.5MW capacity hosted by the same provider.

Operating solely on natural gas, the Greenidge power plant has faced considerable scrutiny since its inception in 2020. In 2021, the mining company announced investments in greenhouse gas reduction projects to counter its environmental impact.

However, it later received a letter from Senator E. Warren questioning its carbon emissions. Despite this, the company continued its operations and boosted its hashrate in Dresden to 1.8EH/s by December 2022.

Nevertheless, mounting electricity and natural gas costs, coupled with financial strain, prompted the company to restructure its debt in January 2023, causing a significant drop in its hashrate in New York.

The decline in hashrate since Q2 was largely due to regulatory pressure, specifically the removal of Riot’s fleet from the Coinmint data center in Massena.

In the first half of 2022, TeraWulf made its debut in the mining industry and rapidly expanded its state fleet, reaching 0.7EH/s in hosting and 1.4EH/s in self-mining by December 2022. Their primary source of power is hydro, which puts them in a favorable position to expand their mining activities. The company recently announced the final phase of its second building with an additional capacity of 50MW, and by doing so, they have set its sights on growing its power capacity in New York to a total of 110MW.

Primarily powered by hydro, the Lake Mariner facility could continue expanding its activities. The company announced in April 2023 the final stage of its second building with an additional capacity of 50MW. In total, the miner power capacity has room to grow to 110MW in New York.

In 2023 we expect the New York hashrate to grow slightly before stabilizing by the end of the year. Conflicting factors such as the decrease in Greenidge hashrate in early 2023 and the future deployment of mining rigs at Digihost’s North Towanda facility are at play. Additionally, the New York hashrate may still not have reached its peak, pending the resolution of Blockfusion’s mining activity and recent progress by TeraWulf at Lake Mariner.

Miner Electricity Mix

In 2022, New York State’s electricity needs were primarily met by natural gas, nuclear power, and hydroelectricity, which accounted for more than 90% of the power mix.

However, the power mix of public miners in the state is less diverse, with a strong dependence on hydro and natural gas, although it is slightly greener.

Sustainable sources account for 50.59% of the state’s power mix, while miners power their machines with 64.43% of sustainable energy. The mining industry consumes a modest share of nuclear energy from a sustainable perspective compared to the grid.

Data Source: Press releases, Investor Presentations

More than half of the miners’ mix is composed of hydro sources, taking advantage of the abundant capacity in the North and West regions of the state. In comparison, the hydro share of the state’s energy mix is just over a fifth.

In terms of fossil fuels, both mixes contain a significant portion of natural gas and a residual amount of petroleum. While the share of fossil fuels consumed is higher in the grid than for miners, it hammers down exposure of some firms to the volatility of natural gas markets, especially in New York state where electricity bills remain elevated due to the spikes in natural gas prices.

The decrease in Greenidge’s self-mining activity in Dresden, which appears to be pivoting towards the hosting model, and the expected expansion at North Towanda are unlikely to impact the natural gas share in the region. On the other hand, the projected growth of TeraWulf at Lake Mariner could strengthen the dominance of hydro in the miners’ mix.

New York Electricity Mix

In 2020, the Accelerated Renewable Energy Growth and Community Benefit Act was passed by the state to accelerate the transition to renewable energy.

The initiative aims to achieve 70% renewable energy by 2030 by integrating a minimum of 6GW of solar resources by 2025 and 9GW of offshore wind by 2035.

Currently, wind and solar only account for a small percentage of the state’s mix at 5.53%, while hydro and biomass make up 29.08% of the renewable mix. The remaining mix is composed of natural gas and nuclear power at 47.93% and 21.50%, respectively.

Data Source: EIA

Over the past ten years, the state has successfully phased out coal, and the last coal-fired power plant was closed in March 2020, with coal’s share never exceeding 3.46% over the decade.

Similarly, the share of nuclear power in the mix declined from 34.26% in 2019 to 21.50% in 2022 due to the closure of the two Indian Point reactors in April 2020 and 2021.

As a consequence of the nuclear reactor closures, the natural gas share has surged to a decade-high level of 47.93% in 2022 from a low level of 36.36% in 2019, resulting in greater exposure to natural gas price volatility for both the New York population and mining companies.

Renewables have made moderate progress over the past decade. Hydro consistently generates more than 20% of New York's electricity needs, making it the largest renewable energy source in the state. In fact, it benefits from the fourth-largest conventional hydroelectric power plant by capacity in the United States and achieved 22.03% of the mix in 2022.

Concerning wind power, it grows from 2.21% to 3.84% of the total mix. By contrast, solar energy surged by nearly 0.40% in 2019 to 1.69% in 2022, outperforming wind power in the same period (3.40% to 3.84%). Still, these two remain limited in the mix.

Given the large deployment of wind and solar power forecasted in the region, some might anticipate a potential use of miners to support the economics of these projects and to balance the grid. In fact, a report from the New York State Energy Research and Development Authority (NYSERDA), emphasized that “However, by 2040, high levels of congestion and some curtailments point to a need for additional bulk transmission upgrades.”

Unfortunately, the messages sent by the regulators over the past two years are more likely to drive miners away than to attract them to foster the deployment of renewables in New York. We will keep an eye on the state for the years to come.

Dealing With The Natural Gas Exposure

In 2022, the global natural gas markets were disrupted, leading to a rapid spread of the shock and putting the security of supply back on the agenda. This was especially significant in Europe where the importing market is reliant on Russia.

The U.S. also experienced higher prices, but its status as a large producer, and a net exporter of natural gas helped the country navigate the turmoil. Nevertheless, grids that heavily rely on natural gas were impacted by the unprecedented environment of tight supply. According to the EIA, in 2020, New York was the sixth-largest natural gas consumer among the states. As a result, many New Yorkers struggled to pay their utility bills due to unsustainable electricity rates.

The NYSO highlights the critical relationship between natural gas and electricity, stating that:

“A key element of the market design [regarding the marginal price setter principle] is that it enables actual costs, including fuel costs, to be accounted for in the clearing price for electricity. As a result, while the competitive market works to minimize cost, electricity prices are significantly influenced by fuel costs and these costs are ultimately passed through to customers in the electricity supply component of consumer bills.

We analyzed the day-ahead power prices and Henry Hub NG on a three-year basis. Following the general increase of natural gas in the mix, coupled with the recent turbulence in the gas market, since 2021 we have witnessed a gradual volatility of day-ahead prices on the grid.

During the Arctic storm in 2021, the reaction of grid prices to the Henry Hub spot provides a good example that testifies to our analysis. While the outages of refineries caused natural gas prices to surge, we observed that the rebound of power rates remained relatively reasonable on a daily basis, even after the Henry Hub prices hit over $23.86.

Data Source NYISO, EIA

In contrast, the grid areas exhibited a higher susceptibility to the surge in natural gas spot prices in 2022. The volatility peaked in various regions, including Capital, Hudson Valley, Central, Genesee, and the West. Even the North zone, with the lowest historical volatility in the past three years, saw a sharp rise in MWh due to the high demand that overwhelmed supply in the winter.

The West and North regions, where most miners are located, offer the lowest grid prices, our findings revealed that volatility still affects electricity rates wherever you draw it from the grid.

Additionally, New York’s recent policy to speed up the shift to a low-carbon economy could lower the natural gas share in the mix. However, it could also increase the dependence on this fossil fuel for base load, particularly if no new hydro or nuclear power plants are constructed in the near future.

Unfortunately, our research indicates that it may take several years before favorable regulations allow nuclear plants to serve as a reliable baseload.

Adding more intermittent renewables can reduce carbon emissions and decrease reliance on natural gas, but it also increases the risk of power shortages when wind and solar energy are not available. Relying solely on natural gas can lead to price increases and the risk of a weak base load.

Miners who have fixed-rate energy purchase agreements can avoid such risks, but securing such agreements in New York can be difficult and expensive. Another option is to use behind-the-meter configurations as previously discussed.

Having power generation assets, like Digihost in North Towanda, can also be beneficial as they can sell power during peak demand and manage their machines based on their breakeven levels.

Given the current regulatory environment, participating in demand response programs in New York may be challenging, especially after the Texas bill limiting Bitcoin miners’ involvement. However, we remain optimistic that lawmakers in New York and other resource-rich states will eventually acknowledge the potential benefits of Bitcoin mining.

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