California Blocks Forced Liquidation of Dormant Crypto
- SB 822 makes California the first state to bar liquidation of unclaimed crypto assets.
- Custodians must notify owners months ahead and transfer assets without conversion.
- Licensed entities will hold dormant digital assets under new custody requirements.
California has enacted a first-of-its-kind law stopping the forced sale of dormant cryptocurrencies, a change in how states handle digital assets. The legislation, signed on Saturday by Governor Gavin Newsom in Sacramento, applies to Bitcoin, Ethereum and other tokens held by custodial platforms across the state. It follows unanimous approval in both chambers and responds to long-standing concerns about automatic liquidation and unintended tax consequences.
Legislative Framework and Sponsors
Senate Bill 822, introduced by Senator Josh Becker of Menlo Park, updates California’s Unclaimed Property Law to cover digital assets. Lawmakers made this change so that inactive crypto accounts are treated the same way as forgotten bank accounts or investments.
The law now clearly defines digital assets as property that can be transferred to state custody if an account has been inactive for three years and the owner cannot be reached. Earlier versions of the proposal would have required exchanges and custodians to convert dormant holdings to cash before reporting them to the state.
Joe Ciccolo, Executive Director of the California Blockchain Advocacy Coalition, said this approach raised concerns about compliance burdens and unintended taxable events. Advocacy groups pushed for assets to remain in native form, and the updated language reflects that position.
Asset Handling and Custodian Requirements
Under the final version of SB 822, holders of digital financial assets must notify apparent owners at least six to twelve months before the unclaimed property process begins. Notifications must follow a standardized form approved by the State Controller’s Office to ensure consistency across platforms. The notice gives owners a chance to log in or update account information to restart the dormancy clock.
If no action follows, custodians must transfer the same type and quantity of digital assets, along with associated private keys, to a state-designated custodian within 30 days of the final reporting date.
The legislation requires those custodians to hold licenses issued by the Department of Financial Protection and Innovation. Licensed entities must also meet security, segregation, and audit standards before receiving any digital transfers.
Once assets move to the Controller’s designated custodian, the state holds them without liquidation for a defined period. The Controller may convert the assets to fiat currency no earlier than 18 months and no later than 20 months after filing. Valid claimants at that stage may either recover the digital asset or receive proceeds from any sale initiated by the Controller.
Related: California Passes “Bitcoin Rights Bill,” Eliminating Tax Restrictions For Payments
Reaction From Lawmakers and Industry
Senator Becker framed the measure as an overdue update to a decades-old property framework that predates digital custody models. He said the bill resolves ambiguity around how to process dormant accounts on crypto platforms operating in California. Lawmakers in both houses supported the final text without opposition, indicating bipartisan agreement on in-kind treatment.
Industry groups have characterized the law as the first formal recognition of how unclaimed digital assets should be handled at the state level. Ciccolo described SB 822 as a step toward regulatory clarity that avoids unnecessary liquidations. Paul Grewal, chief legal officer at Coinbase, publicly thanked Governor Newsom and said that account holders retain the right to reclaim their assets without surprise sales.
Alongside SB 822, Newsom signed Senate Bill 243 over the same weekend, which creates the nation’s first legal standards for AI “companion” chatbots. The two bills are separate efforts to update state rules in response to emerging technologies and consumer protection issues. Lawmakers have treated each measure independently, though both focus on addressing new categories of digital activity.
Michigan lawmakers have also revisited their approach to crypto policy. Last month, House Bill 4087 moved forward with a proposal allowing the state to invest up to ten percent of certain funds in Bitcoin and other digital assets.
Several states like Texas, Arizona, and New Hampshire are also working on crypto-related rules involving reserves, custody, and taxes. Similar efforts are happening abroad, including proposals in the Philippines and projects in Pakistan.
Meanwhile, California’s new law is different because it focuses on how digital assets are owned and stored, not just on investment. The updated Unclaimed Property Law now includes more types of assets and gives clear steps for handling inactive accounts.
It also outlines how the state will deal with unused crypto held by exchanges, making sure assets aren’t sold off too soon and that all notice, licensing, and escrow rules are properly followed. The updated framework also outlines when conversion becomes an option and how claimants access either the asset or proceeds.
