UPDATE: FDIC BAILS OUT SVB DEPOSITORS; ANOTHER CRYPTO BANK COLLAPSES

Sunday evening the FDIC announced that they would extend their insurance coverage to all depositors at the SVB to cover the total amount of all deposits instead of the normal $250,000.  They also announced that all depositors would be able to access their funds on Monday (today). 

This ensures that Allrise Capital (and potentially Bitmain) will be able to pay their bills in the short term. 

The commotion over SVB also limited news coverage of the failure of another crypto bank over the weekend. Sunday the FDIC took control of Signature Bank. Like Silvergate Bank which collapsed last week, Signature Bank's core business is providing banking services to crypto companies. In a huge government bailout for the crypto industry, the FDIC also extended its insurance protections to all depositors at Signature Bank as well.

Of interest, former US Representative Barney Frank (D-Mass), coauthor of the infamous Dodd-Frank Wall Street Reform and Consumer Protection Act was a member of Signature Bank's board of directors.  

Here are two takeaways: 

1) While Allrise dodged a bullet, the collapse of SVB will likely have a deleterious impact on their pending negotiations with our PUD for a new power contract. Allrise will need to re-bank itself and, given the high-risk status of its current portfolio, may have a difficult time finding a bank as willing as SVB to extend credit and serve as a counterparty. 

2) It's unclear which lesson the banking sector will learn from the rapid collapse of a large portion of the crypto-servicing banking industry. They could either learn that crypto clients are high risk and should be treated as such, or they could learn that the government will reward risky baking practices by protecting banks from their own bad risk management practices. ​

Allrise Capital's Bank SVB Collapses. Will Allrise/Bitmain's Bitcoin Mining Survive the Fallout?

It's been a tough few weeks for Allrise Capital and their senior partner Bitmain. On Friday (March 10), Allrise Capital's bank, Silicon Valley Bank (SVB), collapsed and was shut down by the FDIC. The collapse could have significant impacts on Allrise's ability to conduct business in the following ways:

1) Make payroll for its 6 employees at its Usk facility (via Merkle Standard)
2) Make its monthly electricity payments to the PUD
3) Make its next property tax payment to the County
4) Result in significant financial loss (the FDIC only insures $250,0000 in deposits)
5) Significantly limit Allrise's access to credit or extend the terms of existing loans.

Because SVB had mostly corporate customers with large deposits, over 90 percent of its deposits are not covered by FDIC insurance. 

SVB also specialized in serving Chinese tech companies doing business in the US, so it is possible that Bitmain will also be affected. 

In addition to its problems SVB, Allrise and Bitmain had to deal with the collapse of Slivergate Bank earlier in the week. Silvergate was smaller than SVB but specialized in serving crypto customers who, due to their distate for normal standards of financial accountability, would otherwise have trouble obtaining banking services. It is unknown whether Allrise or Bitmain had direct exposure to Silvergate, but the bank's collapse dropped Bitcoin prices by $3,000. 

Furthermore, several of Allrise's other investments in other crypto companies have gone sour. Gemini has become insolvent and has halted customer withdrawals and Kraken was recently fined $30 million by the SEC for selling unregistered securities. 

An HB1416 continues its progress in the State Legislature. The House Bill would require Allirise/Bitmain to comply with the Clean Energy Transformation Act (CETA). As they currently use no CETA- compliant electricity, the bill would increase their electricity costs by requiring them to purchase and use clean, renewable power. Allrise/Bitmain is the only business in Pend Oreille County not using CETA-compliant power, so they will be the only ones affected.

And just to add insult to injury, the White House announced plans to create a 30% excise tax on crypto miners as part of President Biden's new budget proposal.

A remarkable failure to conduct due diligence combined with last May's collapse of the Bitcoin bubble and higher energy costs have already made the Usk facility unprofitable, so these additional financial challenges call into question the Bitcoin mining facilities ability to continue as a going concern. 

Kudos to the PUD for protecting its ratepayers against the SVB collapse

Last May, Allrise/Bitmain's negotiations with Brookfield Renewable for a large power contract to service their Bitcoin Mining in Usk collapsed after Brookfleld conducted a due-diligence review of Allrise/Bitmain. Beijing's Bitcoin team turned to the PUD for a new service agreement. Because Allrise//Bitmain were high risk customers, the PUD required that they obtain a performance guarantee from a major bank who would effectively co-sign the agreement.  

Allrise asked the PUD to accept their bank SVB as the guarantor. Fortunately, the PUD viewed SVB as too risky and made Allrise turn to a more traditional major bank. 

It is now clear that the PUD's effective risk management practices protected it citizen owners from SVB's collapse.

The county's crypto-advocates should bear this lesson in mind before advocating that PUD abandon its policy of protecting its ratepayers in order to subsidize Beijing's bitcoin.