California First State to Protect Unclaimed Crypto from Forced Liquidation, Modernizing Digital Asset Law

California Governor Gavin Newsom has signed Senate Bill 822 (SB 822), making California the first state to explicitly prohibit the forced liquidation of unclaimed cryptocurrency. The new law mandates that digital assets, such as Bitcoin and Ethereum, must be transferred to state custody in their original form, rather than being converted to cash.

The legislation updates California’s existing Unclaimed Property Law (UPL) to include digital financial assets, applying the same framework used for abandoned bank accounts and securities.

Key Protections for Crypto Owners and Industry

SB 822 provides crucial clarity on handling dormant crypto accounts—those untouched for three years after failed contact attempts.

• Prevents Forced Sale: Earlier versions of the bill would have required exchanges and custodians to forcibly sell crypto before transferring it to the State Controller's Office. This would have created an unintended taxable event for consumers without their consent. The new law prevents this by requiring the transfer of the exact asset type and private keys to the Controller's custodian.
• Clear Notification Requirements: The bill mandates that companies holding digital assets must notify owners six to 12 months before assets are reported. This gives owners an opportunity to restart the escheatment period (the legal process of transferring assets to the state).
• Regulated Custody: The State Controller is authorized to select licensed custodians to manage and safely store the unliquidated assets. The Controller can then sell the crypto for fiat currency 18 to 20 months after the initial filing, with valid claimants entitled to receive either the assets or the sale proceeds.

Joe Ciccolo, Executive Director of the California Blockchain Advocacy Coalition, praised the bill as "another important step toward modernizing California's regulatory framework."

Broader Tech Modernization Effort

The crypto law comes as California continues its efforts to modernize its technology sector. Governor Newsom recently signed an executive order launching the "California Breakthrough Project," a state-backed task force aimed at updating government operations with collaboration from major tech and crypto firms, including Ripple and Coinbase.

In a separate move over the same weekend, Newsom signed Senate Bill 243, making California the first state to establish clear guardrails for AI "companion" chatbots, requiring them to identify themselves as artificial and restricting their interactions with minors on sensitive topics.

October 2025, Cryptoniteuae