California Protects Unclaimed Crypto from Forced Liquidation

California has become the first state to explicitly protect unclaimed cryptocurrency from forced liquidation. Governor Gavin Newsom signed Senate Bill 822 into law, updating the state's Unclaimed Property Law to include digital financial assets like Bitcoin and Ethereum.

Key Takeaways:

• Preservation of Assets: The law mandates that unclaimed crypto assets be transferred to the state in their original form, preventing forced conversion to cash.
• Consumer Protection: This approach avoids triggering unexpected taxable events for consumers.
• Clarity for Industry: The legislation provides clear guidelines for exchanges, custodians, and wallet providers on handling dormant crypto accounts.
• Notification Requirements: Holders of digital assets must notify owners 6-12 months before escheatment.
• Custodian Management: The State Controller's Office will select licensed custodians to manage and safeguard escrowed digital assets.

How It Works

The updated law addresses the handling of dormant crypto accounts that have been untouched for three years after failed contact attempts or inactivity. Instead of liquidating these assets, the law requires:

1. Holders to notify apparent owners before reporting the assets.
2. Transferring the exact asset type, private keys, and amount to the Controller's crypto custodian.
3. The Controller can convert the unclaimed crypto to fiat 18-20 months after filing. Valid claimants can receive their assets or the sale proceeds.

Joe Ciccolo, Executive Director of the California Blockchain Advocacy Coalition (CBAC), hailed the legislation as "another important step toward modernizing California's regulatory framework." CBAC actively advocated for the bill's passage.

Newsom also signed Senate Bill 243, establishing guardrails for AI "companion" chatbots.