California has become the first U.S. state to protect unclaimed crypto from forced liquidation. The move brings long-awaited clarity to how dormant digital assets are treated under state law.

Governor Gavin Newsom signed SB 822 on October 14, 2025, finalizing what many call the California unclaimed crypto law. It prevents custodians and exchanges from selling dormant crypto before transferring it to state custody. The measure directly responds to months of confusion that started when lawmakers approved an earlier bill, AB 1052, in June.

From Panic to Policy: How We Got Here

In mid-2025, AB 1052 extended California’s Unclaimed Property Law to cover digital assets held by custodians. The rule relied on the same three-year dormancy law already used for bank accounts and securities. If a user had no login or contact for three years, the platform had to report the balance as unclaimed property.

The update created a wave of alarmist headlines. Some articles claimed the state would “seize idle Bitcoin.” Others suggested California could take control of self-custodied wallets. In reality, none of that was true. AB 1052 only applied to custodial accounts held by crypto exchanges or fintech platforms. It defined when assets became reportable, but not how they would be handled once in state custody. That missing detail fueled weeks of speculation and misinformation across social media.

What SB 822 Changes

SB 822 closes the gaps left by California’s earlier crypto law. Under the California unclaimed crypto law, exchanges and custodians must now follow a set of clear procedures:

  • Transfer digital assets in kind, not convert them to fiat.
  • Send advance notice to owners before an account is declared unclaimed.
  • Use a qualified digital custodian that complies with the state’s digital asset custodian rules.

These steps ensure that dormant crypto is preserved in its original form. They also prevent forced sales that could trigger taxable events or expose users to price swings. In short, the law converts a vague reporting rule into a consumer-protection framework with enforceable safeguards.

Clearing Up the Misconceptions

Much of the public panic came from misunderstanding the term escheatment. The California crypto seizure myth spread fast online, but it was based on false assumptions.

The state cannot access or move anyone’s self-custodied assets. Wallets controlled by private keys remain completely off-limits. Only inactive accounts held by exchanges fall under the rule. That is similar to how the state handles a dormant PayPal balance or checking account.

Escheatment simply means the state takes temporary custody on behalf of the owner. The property still belongs to the individual, who can reclaim it through the state controller’s office at any time. This distinction between custody and confiscation is the key point that many early reports missed.

Why It Matters for Users

The law’s biggest benefit is protection from involuntary liquidation. Under the California unclaimed crypto law, exchanges can no longer convert digital assets without consent. By keeping holdings in kind, users avoid taxable events and unplanned sales.

At the same time, California protects crypto holders by creating a reliable recovery path. Lost credentials or forgotten exchange accounts no longer mean a permanent loss of funds. For consumers, this restores trust in regulated custody. For companies, it sets a clearer compliance framework that reduces liability risks.

Other states are watching closely. California’s model combines investor protection with operational clarity, and that balance could become the national standard.

Timeline: From Outrage to Oversight

  • June 2025: AB 1052 becomes law and applies unclaimed property rules to digital assets.
  • July–August: Misinformation and industry backlash dominate online discussions.
  • September: Lawmakers introduce SB 822 to prevent liquidation and define proper transfer rules.
  • October 2025: Newsom signs SB 822, finalizing the California unclaimed crypto law as a consumer-protection measure.

What’s Next

The Department of Financial Protection and Innovation (DFPI) and the State Controller will now draft detailed implementation guidance. They must also select a qualified state custodian to manage the digital holdings. Exchanges operating in California will need to update compliance workflows to follow California’s unclaimed property framework and the new digital asset custodian rules.

Analysts expect similar measures in New York, Illinois, and Washington. The California crypto regulation trend is already shaping how other states define digital property rights.

The Takeaway

California’s step is not about seizure; it is about safeguarding ownership. The California unclaimed crypto law ensures forgotten assets remain intact and recoverable, without touching self-custody wallets. By outlawing forced sell-offs, the state created a fairer standard for managing unclaimed digital assets. Instead of a crypto crackdown, California delivered a framework that other jurisdictions are likely to follow.

Readers’ frequently asked questions

Does the California unclaimed crypto law apply to personal wallets?

No. The law only covers custodial accounts held by exchanges or payment platforms. If you store your crypto in a personal or hardware wallet, the state has no access to it. Self-custody remains entirely private and unaffected.

What happens if my exchange account becomes inactive for three years?

After three years of no activity or contact, the exchange must report your balance as unclaimed property. Under SB 822, it must transfer your crypto in kind, not liquidate it into fiat. You can claim those assets anytime through the California State Controller’s unclaimed property portal.

When does the new rule take effect, and what should users do now?

Governor Newsom signed the bill on October 13, 2025, and implementation begins once the DFPI issues final guidance. Users should ensure that their contact information and logins remain active on any exchange accounts. This helps prevent their funds from being classified as unclaimed cryptocurrency in the first place.

What’s in it for you? Action items you might want to consider

Check your exchange activity

If you hold crypto on a California-based exchange, make sure you log in occasionally and confirm your contact details. Doing so prevents your assets from being classified as unclaimed property under the new rule.

Review your custody choices

Consider whether your funds are better kept in self-custody or with a trusted regulated custodian. The California unclaimed crypto law protects users, but keeping control of your private keys gives you full ownership.

Stay updated on state guidance

The DFPI will publish detailed instructions for exchanges and users. Following those updates ensures you understand how to reclaim dormant crypto funds or avoid classification under SB 822 in California.

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