California's Landmark Law: First in Nation to Safeguard Dormant Digital Assets from Forced Sale

California Governor Gavin Newsom has signed Senate Bill 822 (SB 822) into law, marking the first U.S. state to explicitly protect unclaimed cryptocurrencies from forced liquidation. The legislation updates California's Unclaimed Property Law to classify digital financial assets, including Bitcoin and Ethereum, as intangible property, ensuring they are preserved in their original form when transferred to state custody The Block^[1]. The law applies to accounts dormant for three years on custodial platforms such as exchanges but excludes private cold storage wallets Decrypt^[2].

Under SB 822, custodians must notify account holders six to twelve months before reporting assets as unclaimed, using a standardized form approved by the State Controller's Office. This allows users to restart the dormancy clock by reengaging with their accounts CoinCentral^[3]. Once declared unclaimed, the exact asset type, private keys, and amounts must be transferred to a state-approved custodian within 30 days. These custodians, licensed by the Department of Financial Protection and Innovation, are responsible for securely managing the assets Cryptonews^[4].

The Controller may convert unclaimed crypto to fiat currency 18 to 20 months after filing, but valid claimants retain the right to reclaim their original assets or receive proceeds from the sale CoinCentral^[5]. This framework aims to prevent unintended taxable events for consumers while balancing state asset management responsibilities. Industry stakeholders, including Coinbase's chief legal officer Paul Grewal, have praised the law for aligning with consumer protection goals and resolving regulatory ambiguity Tecronet^[6].

The California Blockchain Advocacy Coalition (CBAC) highlighted that earlier iterations of the bill would have mandated forced liquidation, creating compliance challenges for custodians and financial risks for users. The final version addresses these concerns by preserving asset integrity and providing clear timelines for notification and conversion COINOTAG^[7]. The law also mandates that the State Controller select licensed custodians to hold unclaimed assets, ensuring adherence to security standards .

The passage of SB 822 follows bipartisan support in both legislative chambers and reflects California's broader efforts to modernize financial regulations for the digital age. Critics, however, argue the law could pressure users to maintain active accounts, potentially infringing on financial privacy. Supporters counter that it establishes a fair system for handling dormant assets while safeguarding long-term investment value .