California Governor Gavin Newsom signed legislation Monday that fundamentally changes how the state handles unclaimed cryptocurrency held on exchanges and custodial platforms. The new law prevents automatic liquidation of dormant digital assets and requires the state to preserve them in their original form for at least 18 months after being reported as unclaimed.
What to Know:
- Senate Bill 822 requires cryptocurrency assets dormant for three years on custodial platforms to be transferred to state custody without forced conversion to cash, marking a departure from traditional unclaimed property handling.
- The State Controller will appoint licensed custodians to manage unclaimed crypto holdings and may only convert assets to fiat currency if no owner comes forward within 18 to 20 months after reporting.
- The legislation classifies digital financial assets as intangible property under California law, addressing a regulatory gap that previously created uncertainty about how cryptocurrencies like Bitcoin and Ethereum should be treated in the state's property reclamation system.
New Framework for Digital Assets
Senate Bill 822, sponsored by Senator Josh Becker, establishes specific procedures for handling cryptocurrency accounts that remain untouched for three years. The measure classifies digital financial assets as intangible property, resolving ambiguity about their treatment under California's existing unclaimed property framework. Custodial platforms such as exchanges must now transfer these dormant holdings to state custody rather than liquidating them automatically.
The legislation addresses a growing concern among cryptocurrency holders who feared losing their assets to forced sales. Previously, uncertainty existed about whether the state would treat digital currencies like traditional securities or cash. The new framework treats them as a distinct category of property requiring specialized handling.
Paul Grewal, chief legal officer at Coinbase, praised the governor's decision.
"Thank you [Gavin Newsom] for signing SB 822, which stops the state from liquidating Californians' unclaimed crypto investments without their consent," Grewal wrote Monday on X.
He added that California should now join 46 other states in protecting the right to stake cryptocurrency with Coinbase and other platforms.
Custodial Requirements and Conversion Timeline
The State Controller gains authority under the new law to appoint one or more licensed custodians responsible for safeguarding unclaimed cryptocurrency holdings. These custodians must maintain the digital assets securely while ensuring compliance with state standards. The legislation does not specify which entities qualify as licensed custodians or what security protocols they must follow.
The law permits the Controller to convert unclaimed assets to fiat currency only after a waiting period. According to the bill's language, conversion cannot occur sooner than 18 months or later than 20 months after the filing date of the required report under Section 1530 of California's unclaimed property code.
This timeline gives asset owners a window to reclaim their holdings before liquidation.
The three-year dormancy threshold applies to all cryptocurrency accounts held on custodial platforms operating in California. An account qualifies as dormant when the owner makes no transactions or communications with the platform during that period.
Understanding Unclaimed Property Law
California's Unclaimed Property Law requires financial institutions to transfer abandoned or dormant assets to state custody after a specified period. The state then attempts to locate the rightful owners while holding the property in trust. Traditional unclaimed property includes bank accounts, uncashed checks, insurance benefits and corporate securities.
Digital financial assets presented a challenge under this framework because their volatile nature and technological requirements differ from traditional holdings.
The question of whether to liquidate cryptocurrency immediately upon receipt or maintain it in digital form created legal uncertainty for both custodial platforms and state administrators.
Senate Bill 822 resolves this by mandating that digital assets retain their original form during the initial custody period. This approach acknowledges that cryptocurrency values fluctuate significantly and that forced liquidation could disadvantage owners who later reclaim their property. The law applies to major cryptocurrencies including Bitcoin and Ethereum, as well as other digital financial assets held on exchanges.
Final Thoughts
The legislation positions California as one of the first states to create specific procedures for handling unclaimed cryptocurrency in its original form. The law balances the state's obligation to protect abandoned property with cryptocurrency holders' interests in preserving their assets without forced conversion. Whether other states will adopt similar frameworks remains to be seen as digital asset regulation continues to evolve.