California Governor Signs Law Protecting Unclaimed Cryptocurrency from Forced Liquidation

California Governor Gavin Newsom signed a bill making California the first state to explicitly protect unclaimed cryptocurrencies from forced liquidation, ensuring that digital assets remain in their original form rather than being converted to cash before being transferred to state custody.

Senate Bill 822The legislation, authored by Sen. Josh Becker (D-Menlo Park), would update California’s decades-old unclaimed property law to treat Bitcoin, Ethereum and other virtual currencies, including digital financial assets, under the same legal framework that governs abandoned bank accounts and securities.

The bill passed both chambers unanimously in September; Newsom’s signature Saturday.

The law clarifies that digital financial assets are a form of intangible property subject to unclaimed property laws and addresses uncertainty about how California should treat dormant virtual currency accounts, i.e., accounts that have been left unclaimed or inactive for three years.

“Previous legislation would have required exchanges, custodians, and wallet providers to compulsorily liquidate their customers’ digital financial assets before transferring them to the state controller’s office, effectively creating a tax liability for consumers without their knowledge or consent,” said Joe Ciccolo, executive director of the California Blockchain Advocacy Coalition. decryption.

“This approach would pose significant operational, compliance, and legal challenges to the industry, while offering little substantive protection to consumers,” added CBAC, which led advocacy efforts through Congress.

Another “important step”

The bill is “another important step in modernizing California’s regulatory framework to reflect the realities of digital financial assets,” Ciccolo said.

The bill imposes certain requirements on holders of digital financial assets to notify the apparent owner prior to the creation of a lien.

Under the bill, businesses would be required to notify owners six to 12 months before the property is reported using a supervisor-approved form that would allow them to restart the escheat period.

SB 822 also provides that holders of digital financial assets must transfer the exact asset type, private key, and unliquidated amount to the custodian’s crypto asset custodian within 30 days of the last reporting date.

The bill authorizes the custodian to select one or more licensed custodians to manage and store escrowed digital assets, and requires custodians to hold a valid license issued by the Department of Financial Protection and Innovation.

According to the bill, the administrator will be able to convert unclaimed cryptocurrencies into fiat currency 18 to 20 months after the application, and valid claimants will be able to receive the assets or sale proceeds.

“SB 822 provides much-needed clarity by extending the existing UPL framework to digital financial assets and ensuring they are treated consistently and responsibly,” he said, noting how the group will continue to engage to ensure the law is applied “consistently, transparently, and in line with the goals of consumer protection.”

Newsom also signed Senate Bill 243 into law over the weekend, making California the first state to set explicit guardrails for AI “companion” chatbots.