California will no longer liquidate unclaimed crypto

California Governor Gavin Newsom has signed Senate Bill 822 (SB 822) into law, making California the first U.S. state to explicitly take steps to protect unclaimed cryptocurrency holdings from forced liquidation by the government. 

The state operates under a longstanding Unclaimed Property Law (UPL) that was originally enacted in the 1950s. Newsom’s decision has now amended it to cover digital financial assets like Bitcoin and Ethereum. 

California will no longer liquidate unclaimed crypto 

Under the new rules, custodians such as exchanges or wallet providers are required to transfer any crypto assets that have remained dormant for up to three years of inactivity or failed owner contact attempts to the California State Controller’s Office in their native form, without forced liquidation or cash conversion. 

This will ensure that automatic sale does not happen and ensures the assets are held securely by a qualified custodian until the owner decides to reclaim them.

The Senate Bill 822 (SB 822), which Newsom signed on Saturday, extends to crypto assets such as Bitcoin and Ethereum, and ensures that unclaimed crypto assets are in their original form when remitted to the state, rather than being liquidated, according to the bill. 

The bill’s passage aligns with California’s efforts to modernize its property and financial laws to address digital assets and has received a warm welcome from key figures in the crypto community. 

“Thank you [Gavin Newsom] for signing SB 822, which stops the state from liquidating Californians’ unclaimed crypto investments without their consent,” Paul Grewal, chief legal officer of Coinbase, wrote on X before challenging “California to join the 46 other states, along with [SEC] that protect the right to stake with [Coinbase] and others.”

SB 822, which was sponsored by Senator Josh Becker, specifies terms for a framework for handling dormant cryptocurrency accounts — those left untouched or inactive for three years. By classifying digital assets as intangible property, the legislation gets rid of uncertainty about how such holdings should be treated under California’s existing property reclamation system.

Thanks to the new legislation, the State Controller has the authority to appoint one or more licensed custodians to manage and safeguard unclaimed crypto assets while ensuring compliance with state standards. 

The Controller is allowed to convert the assets to fiat currency if no claimant has come forward within 18 to 20 months after an unclaimed account is reported. 

“These securities shall be sold by the Controller no sooner than 18 months, but no later than 20 months, after the actual date of filing of the report required by Section 1530,” the bill said. 

Gavin Newsom approves a flurry of legislation 

Gavin Newsom has been working hard to keep California on the pro-innovation path without compromising on consumer protection. SB 822 was part of that act, but it is not the only bill he has signed recently in that category. 

On Monday, days after signing SB 822, Governor Gavin Newsom signed Senate Bill 243, which mandates AI chatbot operators to implement measures to prevent suicide content, notify minors they are interacting with machines, and block explicit material.

Newsom also vetoed Assembly Bill 1064, which aimed to restrict access to companion chatbots for minors, citing concerns that it could inadvertently ban beneficial AI tools.

The signed legislation requires chatbots to remind minors to take breaks every three hours and refer users to crisis hotlines, addressing growing concerns about the mental health impact of AI on youth.

Tech industry groups, including TechNet, have opposed SB 243, arguing that its definitions and enforcement measures could hinder innovation and impose excessive penalties, while child safety advocates expressed disappointment over the veto of AB 1064, emphasizing the need for stronger regulations to protect minors from potential harm caused by AI chatbots.

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