Over the weekend, California Governor Gavin Newsom signed a bill into law that preserves abandoned Bitcoin (BTC) holdings — a step forward that could provide legal clarity for custodians and crypto holders.
The bill was an update to unclaimed property law (UPL) and contained one key provision: Abandoned Bitcoin or crypto holdings that are transferred to the state must be maintained in their original format (not sold for cash) for a certain amount of time.
States with similar laws require that crypto be liquidated into cash immediately. This can create difficulties for recovering lost property and also creates administrative burdens for exchanges and crypto custodians.
The new law in California reflects growing adoption and understanding of cryptocurrency among lawmakers. It may also influence how other states choose to regulate crypto in the future.
California just passed a bill to seize #Bitcoin left idle on exchanges.
After 3 years of inactivity, assets can be taken by the state under ‘Unclaimed Property’ laws.
Bill now heads to the Senate. pic.twitter.com/nl1pQPWkvW
— TFTC (@TFTC21) June 4, 2025
Abandoned Bitcoin stays Bitcoin… for a time
State governments use the escheat — the reversion of property to the state — and the sale of abandoned property as a revenue source. As cryptocurrencies become more popular, states are “increasingly amending their unclaimed property statutes to allow state administrators to take control of these assets as an untapped source of revenue,” wrote attorney Cassie Arntsen in the Iowa Law Review.
On Oct. 11, Newsom signed SB 822 into law. In doing so, California joined Delaware, Illinois, Kentucky and New York as states that have included crypto in their laws surrounding abandoned property.
The law, which passed unanimously, represents a critical update to the decades-old UPL legislation that was already on the books.
The new code stipulates that crypto is considered abandoned if it sits in an exchange or custodian account for three years without any action. These actions include:
This initially raised concerns among crypto observers, who were under the impression that the state was out to steal their crypto. One invoked the crypto slogan “not your keys, not your coins.” Others thought the state could, somehow, transfer crypto from your wallet and then sell it.
Notably, the law only applies to custodial platforms; non-custodial wallets are unaffected. Even then, the custodian must provide notice no less than six months after the state deems the property abandoned.
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The California law sets itself apart from other states in that abandoned Bitcoin or crypto need not be converted into fiat currency. Instead, it will be turned over to a state-appointed custodian in its original form. In other states, abandoned and escheated Bitcoin is immediately converted into cash.
Once the state has the crypto, it can only sell it after 18 months if it deems it necessary or beneficial to do so.
Crucially, this will allow investors to receive their Bitcoin back in full if they claim the abandoned property. Eric Peterson, policy director for the Bitcoin advocacy group Satoshi Action Fund, said, ”The state will send you your Bitcoin back in Bitcoin, rather than liquidating it years ago and sending it in cash.”
On Oct. 14, Paul Grewal, chief legal officer of Coinbase, hailed the new law as a step in the right direction in protecting crypto investor rights.
Lawmakers struggle to reconcile law with crypto
Cryptocurrencies and blockchain technology have often butted up against outdated legislation. Simple inclusion of crypto under existing umbrellas doesn’t always provide legal certainty and can even, in some cases, make things murkier.
As noted by a team of lawyers at Jones Day in Chicago, Illinois, the local state law pertaining to abandoned crypto represented “an administrative burden for crypto custodians and may be unwelcome by long-term crypto investors.”
Illinois law (and the laws of many other states) requires immediate liquidation, which “undermines that custodial nature” of crypto, the counsel at Jones Day stated. “While owners can still collect their value, that value is now fixed and finite, unable to ride the ebbs and flows of the market.”
This will likely result in a headache for the state, investors and custodians alike. By law, investors are entitled to the value of the crypto when sold but are not allowed recourse to recover any increase in value after it is sold.
Still, it is unlikely that this “will dissuade legal action by the angry owner of crypto that increased tenfold since the date of liquidation.” Per historical trends, “owners will not stand by as docile observers when a holder liquidates his or her crypto.”
Arntsen also stressed that lawmakers need to bring their administrative capabilities into the modern age. She recommended that states hire outside expertise to create the necessary wallets and custodial capabilities to store crypto. She also said the state could use an exchange like Coinbase to liquidate its escheated assets.
The cryptocurrency industry has achieved several policy victories in the US over the last year. Stablecoins have clear laws, and Congress is working on the massive Responsible Financial Innovation Act, the market structure bill for crypto. However, at the state level, progress is moving in fits and starts.
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