In a significant ruling for cryptocurrency bankruptcy cases, a Delaware bankruptcy judge has determined that commingled cryptocurrency and fiat currency held by bankrupt crypto custodian Prime Core Technologies Inc. constitute property of the bankruptcy estate and can be distributed to creditors as dollars rather than in-kind digital assets.
The opinion, issued on July 18, 2025, by U.S. Bankruptcy Judge J. Kate Stickles in the case of Prime Core Technologies Inc. and its affiliated debtors (Case No. 23-11161), addresses fundamental questions about cryptocurrency ownership, traceability, and the impact of commingling in bankruptcy proceedings.
"Money paid from a bank account containing commingled funds under a debtor's control is presumptively property of the debtor," Judge Stickles wrote in her opinion. "Therefore, the Currency is property of the Debtors' Estates."
Prime Core Technologies, which operated as Prime Trust, was once a significant cryptocurrency custodian before filing for Chapter 11 protection in August 2023. At its peak, the company processed over 300,000 transactions daily and held more than $3.8 billion in cryptocurrency and fiat currency for customers.
The ruling came in response to a motion filed by the Plan Administrator seeking court approval to treat both cryptocurrency and fiat currency held by the debtors as property of the bankruptcy estates, allowing for their distribution to creditors according to the bankruptcy plan confirmed in December 2023.
Several customers, including cryptocurrency company Coinbits, Inc., objected to the motion, arguing that their assets were held in trust and should be traceable through blockchain technology, which creates a permanent record of cryptocurrency transactions.
However, the court found persuasive the evidence presented by the Plan Administrator's forensic expert, James P. Brennan, who testified that Prime's practices of commingling assets, both in omnibus cryptocurrency wallets and bank accounts, made it impossible to trace specific assets back to individual customers.
"Prime held and commingled the crypto from its various customers in Omnibus Wallets, where it was further commingled with crypto that Prime used for its own corporate operations and purposes," Brennan testified. He further explained that Prime's repeated practice of "sweeping" customer deposits into omnibus wallets and "condensing multiple UTXOs [Unspent Transaction Outputs] into new single UTXOs invalidates anyone's ability to trace customers' specific crypto."
The court was also troubled by evidence that Prime's internal ledgers were corrupted and fraudulently manipulated, further complicating any effort to trace ownership.
"We interviewed many people at Prime Trust. And one of the issues that we've uncovered was that the internal ledgers were corrupt, and so we wouldn't be able to rely on those internal ledgers because of the corruption, because of the fraud, because of what went on in Prime Trust," testified Brennan.
Coinbits' expert witness, David Birnbaum, countered that blockchain technology should make cryptocurrency tracing straightforward. "It's actually all public. You can go to a website...and you can see every single Bitcoin transaction on there," Birnbaum testified.
However, Judge Stickles found that the theoretical ability to trace transactions on the blockchain did not overcome the practical reality of how Prime operated, including the extensive commingling and the volume of transactions involved.
The ruling also addressed the Plan Administrator's decision to "dollarize" cryptocurrency holdings—converting them to U.S. dollars for distribution rather than distributing the cryptocurrency in-kind to creditors. The Plan Administrator argued that in-kind distributions would require extensive know-your-customer verification, incur multiple transaction fees, and delay distributions by approximately 18 months.
The case highlights the tension between the theoretical immutability and traceability of blockchain records and the practical challenges of establishing ownership when custodians commingle assets and maintain inadequate records.
The court's decision comes after a troubled history for Prime, which included a significant event called the "Wallet Event" in which the company lost access to cryptocurrency stored in what was known as the "98f Wallet." This eventually led to a receivership in Nevada state court before the bankruptcy filing.
The ruling may have significant implications for cryptocurrency investors who rely on third-party custodians, suggesting that in bankruptcy proceedings, commingled cryptocurrency may be treated similarly to commingled cash—as property of the debtor's estate rather than as specifically traceable assets belonging to individual customers.
This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 34 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.