California crypto law dormancy clock

Lawmakers in the United States are redefining how digital assets are treated, and the new California crypto law in the world’s fourth-largest economy is now at the center of that shift.

AB 1052 brings digital assets under California’s Unclaimed Property Law

With Assembly Bill 1052, authored by Assembly member Avelino Valencia, California has formally inserted crypto into its Unclaimed Property Law framework.

The measure, adopted after a 69–0 vote, ends years of uncertainty over how the state should treat dormant Bitcoin and other tokens.

Under AB 1052, digital assets are now officially classified as intangible property. This change, effective from negotiations that began as early as June 2025, forces a comprehensive clean-up of how custodians and platforms manage inactive accounts.

Moreover, it signals that this California new law intends to recognize crypto as part of the mainstream financial system.

However, the state is not following the traditional seizure model used for other unclaimed property. Instead of converting assets to dollars, California must appoint a licensed custodian to hold unclaimed coins and tokens in their native form.

Lawmakers stressed that “California must protect consumer assets and embrace the legal recognition of digital assets, crypto and blockchain as we continue to modernize our economy and the systems in our society.”

Three-year dormancy clock and ‘use it or lose it’ pressure

The centerpiece of the reform is a three-year inactivity trigger that applies to custodial accounts. If a user leaves Bitcoin or other tokens untouched and unresponsive to outreach for three years, the state can treat that balance as abandoned under the new crypto dormancy period standard.

That said, the law does not confiscate private wallets or on-chain addresses. It instead targets coins left with exchanges and custodial platforms that fall under California jurisdiction. These intermediaries must now deploy robust notification systems to alert customers before the three-year timer runs out, creating new exchange compliance burdens that many platforms will need to address quickly.

In practice, the measure acts as a regulatory “use it or lose it” signal. Long-term holders who previously embraced the classic HODL mindset may feel pressure to move assets into self-custody or maintain regular contact with their platforms. According to policymakers behind the california crypto law, this shift is meant to protect forgotten accounts while nudging investors to take more active control over their holdings.

Why California’s crypto law differs from other US states

California is not the first state to regulate unclaimed digital assets. However, it stands out because it explicitly preserves exposure to the underlying cryptocurrency instead of forcing conversion into U.S. dollars. This design makes the framework more protective of potential future upside for investors.

By contrast, states such as Illinois and Delaware have adopted rules requiring that abandoned digital assets be sold for dollars before being turned over to the government. In those jurisdictions, if you misplaced access to your Bitcoin when it was worth $20,000, the state would liquidate it at that price and hold the cash, leaving you out of any subsequent rally.

Arizona followed a similar path with its 2025 law, which also sets a three-year dormancy period but allows the state to liquidate crypto balances through approved exchanges. Moreover, these earlier frameworks crystallize the value of dormant holdings at a single point in time, while California’s design attempts to preserve the native-asset upside for eventual claimants.

Institutional legitimacy and heavier compliance load

Bringing digital assets under the Unclaimed Property Law boosts institutional legitimacy for the sector. Businesses in California can now accept crypto with clearer rules about what happens if customers or employees forget balances. This greater certainty may encourage broader corporate adoption and more formal accounting practices across the industry.

However, the law also introduces a heavier compliance burden for exchanges, custodians and fintech platforms operating in the state. They must identify accounts that meet the inactivity criteria, pursue repeated outreach to users, document those efforts, and then coordinate with the state’s appointed custodians if balances are deemed abandoned. This operational overhead will likely require new systems, audits and legal reviews.

Moreover, the requirement that a state-appointed, licensed custodian hold unclaimed coins in native form creates a specialized niche in California’s financial infrastructure. Service providers that can securely manage multi-asset cold storage, reporting, and eventual reunification with owners are poised to gain strategic importance in this evolving market.

Impact on HODL culture and the move to self-custody

For years, the standard HODL playbook was simple: buy Bitcoin, transfer it to a secure location, and ignore it for a decade. That culture now collides with a regime in which prolonged silence can be interpreted as abandonment, at least when assets sit on custodial platforms subject to California oversight.

The three-year inactivity rule pressures users to engage periodically with their accounts. That said, it also indirectly accelerates the shift to self custody, as privacy-focused and security-conscious investors may prefer to hold their own keys rather than trust third parties that could eventually be required to escheat assets to the state.

Following Assembly member Valencia’s closing appeal, the absence of further floor debate signaled an unusual degree of bipartisan unity around the need for clear crypto escheatment rules. The 69–0 result underscores how concerns over consumer protection and lost assets can bridge partisan divides at a time when digital-asset regulation is often politically charged.

Rising market backdrop amplifies stakes

The law arrives at a pivotal moment for digital markets. As 2026 unfolds, the broader crypto sector is trading in a strongly bullish zone, and Bitcoin has finally moved above the $90,000 threshold. For investors who once ignored inactive exchanges, the potential cost of missing such upside is now far more visible.

Meanwhile, Ethereum (ETH) is also showing renewed strength, recently pushing past $3,300 with increasing momentum. Against this rallying backdrop, California’s policy choice to preserve asset form rather than liquidate to cash takes on heightened importance, since it could determine whether claimants fully benefit from future price appreciation.

Moreover, the enactment of AB 1052 effectively ends the era of regulatory ambiguity for long-term crypto holders in California. While the framework imposes strict requirements on custodians, it also provides investors with clearer expectations about how inactivity, state oversight and eventual recovery of assets will interact.

Summary

California’s AB 1052 integrates digital assets into the state’s Unclaimed Property Law while preserving them in native form instead of liquidating to dollars. The three-year inactivity rule, combined with stringent custodial obligations, enhances consumer protection yet raises compliance demands. In a bullish market, this model could become a template for balancing investor rights, state oversight and long-term crypto value.