California Protects Unclaimed Crypto from Forced Liquidation

California Governor Gavin Newsom’s signing of Senate Bill 822 represents a significant milestone in digital asset regulation, making California the first state to explicitly include digital financial assets under its Unclaimed Property Law. Authored by Senator Josh Becker (D-Menlo Park), the legislation passed unanimously through both legislative chambers in September before receiving the governor’s approval. The bill fundamentally updates California’s decades-old unclaimed property framework to treat Bitcoin, Ethereum, and other cryptocurrencies with the same legal standing as traditional abandoned financial instruments like bank accounts and securities.

The legislation specifically addresses how California should handle dormant crypto accounts—those untouched for three years after failed contact attempts or prolonged inactivity. By clarifying that digital financial assets constitute intangible property subject to existing unclaimed property regulations, SB 822 provides much-needed legal certainty for both industry participants and consumers. This regulatory clarity comes as digital assets continue to gain mainstream adoption, necessitating updated legal frameworks that reflect modern financial realities.

One of the most significant consumer protections in SB 822 is its prohibition against forced liquidation of digital assets before transfer to state custody. Earlier versions of the legislation would have required exchanges, custodians, and wallet providers to convert customers’ digital financial assets to cash before transferring them to the State Controller’s Office—a process that would have created taxable events for consumers without their knowledge or consent.

Joe Ciccolo, Executive Director of the California Blockchain Advocacy Coalition, which led advocacy efforts throughout the legislative session, explained the critical importance of this provision. “This approach would have introduced significant operational, compliance, and legal challenges for industry, while offering little real protection to consumers,” Ciccolo told Decrypt. The preservation of assets in their native form prevents consumers from facing unexpected tax liabilities and maintains the potential for asset appreciation during the custody period.

The legislation establishes clear operational requirements for companies holding digital financial assets. Holders must notify apparent owners six to twelve months before assets are reported to the state, using a Controller-approved form that allows owners to restart the escheatment period. This notification requirement provides consumers with ample opportunity to reclaim their assets before state custody transfer.

Within 30 days after the final reporting date, asset holders must transfer the exact asset type, private keys, and amount—unliquidated—to the Controller’s designated crypto custodian. The bill authorizes the State Controller to select one or more licensed custodians for managing and safeguarding escrowed digital assets, with custodians required to hold valid licenses issued by the Department of Financial Protection and Innovation. This licensing requirement ensures professional management of assets during state custody.

The legislation does provide for eventual conversion to fiat currency, but only after a substantial holding period of 18 to 20 months after filing. Valid claimants retain the right to receive either their original digital assets or the net proceeds from any conversion, ensuring flexibility in how consumers reclaim their property. This balanced approach protects consumers while acknowledging practical considerations of long-term asset management.

The California Blockchain Advocacy Coalition has praised SB 822 as “another important step toward modernizing California’s regulatory framework to reflect the realities of digital financial assets.” According to Ciccolo, the legislation “provides long-awaited clarity by extending the existing UPL framework to digital financial assets, ensuring they’re handled consistently and responsibly.” The coalition has committed to remaining engaged to ensure the law is applied “consistently, transparently, and in line with its consumer-protection goals.”

This landmark legislation establishes California as a leader in digital asset regulation, potentially serving as a model for other states grappling with similar regulatory challenges. By treating digital assets with the same seriousness as traditional financial instruments while accounting for their unique characteristics, California has created a framework that balances consumer protection with practical implementation. The legislation’s success in passing unanimously through both legislative chambers suggests broad recognition of the need for updated regulations in the rapidly evolving digital asset space.