Cryptocurrency custody firm BitGo has reached a preliminary agreement to buy Prime Trust, another crypto custody specialist regulated in the state of Nevada, according to two people familiar with the matter.

The deal is preliminary, and still requires regulatory approval, according to one source.

Prime Trust had been the subject of some speculation with people online suggesting the firm was facing bankruptcy. The financial terms of the deal were not disclosed by the other source.

BitGo declined to comment. Prime Trust did not respond to requests for comment, though the Wall Street Journal reported that a representative confirmed the sale to it.

After the publication of this article, BitGo confirmed in a blog post that it had signed a term sheet to acquire Prime Core Technologies, Prime Trust's parent company.

In a statement, Prime Trust Interim CEO Jor Law called the move "a significant enhancement for the industry."

"No other company will have the breath of product and services nor depth of experience that this combined company would have. We are excited to offer our world-class infrastructure within a broader ecosystem and revolutionize the future of crypto," Law said.

BitGo CEO Mike Belshe said the move would position the firm "to enhance its best-in-class, trusted solutions and to service the combined customer base."

The need for safekeeping and storage of cryptocurrencies, particularly for institutional customers and high net worth individuals, has driven digital asset custody to prominence, with many flavors on offer and firms commanding high valuations. The issue has also drawn the attention of the U.S. Securities and Exchange Commission (SEC), which has put out proposed rulemaking on custody issues.

Las Vegas-based Prime Trust raised $107 million in funding midway through 2022, before the crypto bear market really began to bite. But the news of late has not been good, with the firm shedding a third of its workforce at the end of January this year and announcing it would cease operations in Texas where the firm was pursuing a money transmitter license.

Cohen & Company Capital Markets acted as the financial advisor to Prime Trust.

Read more: Expect Ripple Deal to Set Off Crypto Custodian M&A, Says Advisory Firm

UPDATE (June 8, 2023, 19:40 UTC): Adds details of second source.

UPDATE (June 8, 20:10 UTC): Adds Wall Street Journal update.

UPDATE (June 8, 20:15 UTC): Adds BitGo confirmation.

UPDATE (June 8, 1:27 UTC): Adds Prime Trust's financial advisor.

Will Canny and Nikhilesh De contributed reporting.