- SB 822 classifies digital assets as intangible property and ends forced cash conversion by custodial platforms.
- Custodians must notify owners months ahead and transfer assets with keys if no response is received.
- Licensed state custodians will hold assets up to 20 months before any optional conversion to fiat.
California has moved to stop custodial platforms from liquidating inactive cryptocurrency accounts, setting the first state-level rule that preserves unclaimed digital assets in their native form. Governor Gavin Newsom signed Senate Bill 822 after both legislative chambers approved the measure without opposition.
The law applies to Bitcoin, Ethereum, and other assets held on custodial platforms and updates the state’s Unclaimed Property Law, which did not previously address digital holdings. Lawmakers introduced the change after recurring concerns over tax exposure and forced sales tied to dormant accounts.
Revised Statute Extends to Digital Property
Senate Bill 822, written by Senator Josh Becker of Menlo Park, redefines digital assets as intangible property subject to escheat after three years of inactivity. The revised statute also requires attempts to contact account owners before any transfer.
Earlier drafts called for automatic conversion of holdings to cash before reporting them to the state. Joe Ciccolo of the California Blockchain Advocacy Coalition said that approach created compliance risks and potential taxable events for account owners. Advocacy groups pressed for language that kept assets in-kind, and lawmakers adopted that position before final passage.
Custodians Face Structured Transfer Rules
Under the new system, custodial platforms must notify apparent owners six to twelve months before the unclaimed property process starts. Notices must follow a standardized format approved by the State Controller’s Office.
If owners do not act, the custodian must transfer the same quantity and type of asset, including private keys, within 30 days of the final report date. The law also requires custodians receiving assets on behalf of the state to hold licenses from the Department of Financial Protection and Innovation. Licensed entities must meet standards involving segregation, audits, and security before accepting transfers.
Once moved to the designated custodian, assets remain untouched for at least 18 months and no more than 20 months. During that period, the Controller may choose to convert the assets to fiat currency. Claimants can recover either the original asset or proceeds from any state-initiated sale.
Industry Groups Back In-Kind Treatment
Senator Becker said the law updates outdated rules that lacked guidance for dormant crypto accounts. He also noted that the measure removes uncertainty for platforms based in California.
Ciccolo called the bill a step toward formal rules that prevent unwanted liquidation. Coinbase chief legal officer Paul Grewal acknowledged the change and thanked the Governor for recognizing the need for owner protections.
The same weekend, Newsom approved Senate Bill 243, which introduces standards for AI chatbots described as companions. Lawmakers advanced both bills separately, though each addresses new categories of digital activity.
Other states, notably Michigan, Texas, Arizona, and New Hampshire, have recently weighed digital asset rules focused on reserves, custody models, or public fund exposure. However, the California law stands out because it covers ownership transfers and handling procedures rather than investment strategies.
