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(Kitco News) - Cryptocurrency custody provider BitGo has announced that it is terminating the firm's planned acquisition of its cash-strapped rival Prime Trust just two weeks after the custodians announced that a preliminary deal had been reached.
“After considerable effort and work to find a path forward with Prime Trust, BitGo has made the hard decision to terminate its acquisition of Prime Trust,” the company tweeted on Thursday. This decision was not made lightly and BitGo remains committed to our mission to deliver trust in digital assets.
The planned acquisition, first announced on June 9, came amid rumors that Prime Trust, a Nevada-based firm that custodies crypto and helps digital-asset companies park cash at network banks, was struggling to service withdrawal requests from its customers at Binance.US, Abra, and Swan Bitcoin.
According to several Twitter users, Prime Trust sent an email to its customers on Wednesday announcing that it has suspended all deposits and withdrawals, effective immediately, after it received a cease and desist letter from Nevada state regulators.
“Prime Trust regretfully informs all of you that, by order of the Nevada Financial Institution Division received on Wednesday, June 21st, 2023, Prime Trust is halting all deposits of fiat and digital assets for custody,” the firm wrote in the email. “We will also be halting all withdrawals of fiat and digital assets for custody. Please take action immediately to stop sending client custody assets to Prime Trust, especially digital assets.”
While the company has halted services and questions remain regarding its long-term health, Prime Trust said that it plans to restart operations once the regulatory confusion has been resolved.
“Prime Trust is actively engaging the NV FID to determine next steps to remediate any concerns and return to business as usual as soon as possible,” the email said. “We sincerely apologize for this inconvenience and ask you to be patient with us while we work with the regulators to prove more clarification on the next steps.”
The challenges Prime Trust is facing are considered by many to be fallout from the lawsuits filed by the U.S. Securities and Exchange Commission (SEC) against Coinbase and Binance, the two largest cryptocurrency exchanges in the world.
Prior to the acquisition announcement, Prime Trust had been trying to raise as much as $25 million in emergency funding amid rumors that it faced bankruptcy due to a cash crunch.
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The firm, which has been offering services to crypto companies since 2018, is said to have served nearly 700 fintech and crypto clients over the past five years. The outlook for the company began to turn sour in 2022 amid the extended crypto winter that was exacerbated by the collapse of Terra/Luna and the bankruptcy of FTX, which hit Prime Trusts’ customer base hard.
In the wake of its struggles, the company has lost some of its highest-profile clients, including Swan Bitcoin, which posted a notice on its website two weeks ago that said the platform was undergoing a “major system upgrade.” Cory Klippsten, the CEO of Swan Bitcoin, also tweeted that all of the Bitcoin and U.S. dollars held by the platform's clients are now custodied with Fortress or BitGo.
They also lost Binance.US as a client due to the charges filed against the exchange by the SEC. The lawsuit filed by the regulator mentions a “Trust Company B,” which has drawn speculation on social media that it could be Prime Trust, a development that only adds to the difficult times the firm faces.
