Crypto Custodian Prime Trust Files for Bankruptcy

By Landon Manning

Following months of beleaguered financial operations, Nevada-based crypto custodian and digital assets firm Prime Trust has filed for Chapter 11 bankruptcy. 

Although far from the largest business of this sort in the international cryptocurrency ecosystem, Prime Trust was a fairly high-profile firm, making headlines with its 2022 funding round of more than $100M and generally dealing with revenue streams in the tens of millions of dollars. Still, as is so often the case in the world of Bitcoin, operations that at first glance appear to be wildly successful can end up cratering dramatically once cracks begin to appear. Such appears to be the case with Prime Trust, as it announced this filing in mid-August. But what caused it? And what implications will this have for the markets as a whole?

Prime Trust filed for bankruptcy in the state of Nevada on August 14th, appointing a Special Committee to liquidate all its assets in a transparent and orderly manner. Regulators claimed upon looking at the company’s books that some $82M in customer deposits had come up short, a problem compounded by the fact that a significant portion of the company’s crypto reserves were not in Bitcoin or some other widely-tradable currency, but in illiquid tokens. Further digging, however, has shown that Prime Trust’s total liabilities across its subsidiary companies might go as high as $500M. Considering that Prime Trust had a large number of institutional clients for its custody services, there are concerns that this bankruptcy could destabilize the industry.

However, as many commentators have pointed out, signs of impending collapse at Prime Trust have been clearly visible for months. In early June,…