Crypto or Cash? California’s New Law Draws the Line

How California’s SB 822 will impact digital assets

California’s Senate Bill 822 (SB 822), signed into law by Governor Gavin Newsom in October 2025, makes California the first US state to protect unclaimed crypto assets from forced liquidation.

Treating digital assets similarly to bank accounts and securities, SB 822 requires unclaimed cryptocurrencies to be transferred in their native form rather than immediately liquidated. This helps prevent forced liquidation of assets like Bitcoin (BTC) or Ether (ETH), which could otherwise trigger taxable events for holders without their consent.

SB 822 has reshaped the legal treatment of digital assets by bringing them under California’s Unclaimed Property Law, the first state framework to clearly include crypto in rules around holding and transferring unclaimed property. Under this law, account holders can reclaim their original digital assets or, if those assets were sold, the net proceeds from the sale by submitting a valid claim to the State Controller.

Authored by Senator Josh Becker, SB 822 updates California’s decades-old Unclaimed Property Law. It passed through both houses in September 2025 before being signed by Governor Gavin Newsom.

Did you know? Self-custodied wallets are generally outside the scope of unclaimed-property laws because no third-party “holder” exists. However, that doesn’t make them risk-free for users. Lost keys, forgotten seed phrases or the death of an owner without an inheritance plan can permanently strand digital assets.

What is unclaimed property, and why does crypto pose a challenge?

Unclaimed property, or escheatment, refers to financial assets that remain inactive or abandoned by their rightful owners for a set period, typically three years. After this period, the state takes over the property. Conventionally, dormant bank accounts, uncashed checks or forgotten securities came under the purview of escheatment.

Applying unclaimed-property laws to cryptocurrency posed significant challenges for regulators. The decentralized nature of crypto raised questions about whether it should be classified as cash, property or a unique asset class. In addition, custodians and exchanges faced operational hurdles in transferring assets to the state without triggering taxable events for users.

Earlier drafts of California’s SB 822 reportedly required custodians to liquidate crypto before remittance. Such a move would have hurt user interests, complicated compliance and weakened digital-asset ownership principles. Joe Ciccolo of the California Blockchain Advocacy Coalition, who previously submitted comments to the Department of Financial Protection and Innovation on digital-asset regulation, stated that the final version avoided those pitfalls and better protected consumers.

How California’s SB 822 operates

California’s SB 822 provides a clear structure for managing unclaimed cryptocurrency under the state’s Unclaimed Property Law. It classifies digital financial assets as intangible property subject to escheatment rules.

The bill considers assets abandoned after three years without any indication of owner interest, such as account activity or communication. It excludes game tokens, loyalty points and non-crypto digital content. Before reporting assets to the state, holders (exchanges or custodians) must notify owners six to 12 months in advance, providing detailed notice content and a form allowing users to reactivate accounts to reset the dormancy period.

Once unclaimed, holders must transfer the same asset type and amount (without liquidation) within 30 days to a state-appointed crypto custodian. The State Controller may decline custody if it’s not in the state’s interest. After about 18-20 months, the state may convert holdings to fiat; claimants can recover either the original crypto (if still held) or its proceeds. Owners or heirs may file claims under the state’s unclaimed property claim procedures.

Did you know? Claims typically have no statute of limitations once holders transfer the assets to the state’s custody. That means you or your heirs can reclaim long-lost crypto years later. The claim requires paperwork and proof of ownership.

How does SB 822 operate in practice?

Understanding how digital assets are treated as unclaimed property in California is crucial for account holders and custodians. Here is a walkthrough of a dormant wallet scenario, following a crypto holder through the mandatory notification and transfer process to a state-appointed custodian.

• Dormant wallet scenario: Suppose Allan holds Bitcoin on a California-based exchange but doesn’t log in or show any indication of interest for three years. The exchange must send him a notice six to 12 months before reporting the account as unclaimed. If he doesn’t respond, the exchange reports the holding and transfers the crypto, unchanged and unliquidated, within 30 days to a state-appointed custodian. If Allan returns later, he can file a claim with the State Controller’s Office to recover his original coins.

• Edge cases and caveats: If a holder cannot reach the owner because of inactive contact details or a changed address, the asset still qualifies as unclaimed. If the owner files a claim after the crypto has been liquidated by the state, there may be questions about the valuation date and potential capital gains implications under federal tax law.

• Exchange compliance: Platforms must maintain contact records and documentation of all owner communications. They also need secure transfer procedures and must use standardized owner-notification forms prescribed by the State Controller. In addition, exchanges are required to coordinate with state-appointed crypto custodians to ensure compliance.

Implications of SB 822: Why it matters

California’s SB 822 represents a significant change in how digital assets are handled under state law. It has streamlined operations and compliance for all stakeholders: users, holders, custodians, tax authorities and regulators.

• For crypto users and holders: SB 822 prevents forced liquidation of unclaimed assets and allows owners to reclaim while their crypto is held in state custody. It also promotes a better claiming process, such as keeping contact details updated.

• For exchanges and custodians: The law imposes significant compliance obligations, including record-keeping, owner notifications, proof of notice and the transfer of unliquidated crypto to the state.

• For tax authorities and regulators: SB 822 may generate potential revenue if assets are sold after a waiting period. It makes California the first state to prohibit forced liquidation of unclaimed crypto, establishing a regulatory precedent other states may adopt.

Did you know? Staking rewards and airdrops can complicate unclaimed crypto. Some jurisdictions expect holders or state custodians to preserve assets as they are, which may include rewards accruing during custody.

How California’s SB 822 is setting the standard for unclaimed crypto

California’s SB 822 aligns with broader efforts globally to integrate cryptocurrency into existing property laws. Several US states, such as Arizona and Texas, have taken steps to include digital assets in unclaimed-property frameworks.

• Arizona: In May 2025, Arizona’s HB 2749 placed “digital assets” and “virtual currency” under its unclaimed property law. It considers assets abandoned after three years without any owner activity, with undeliverable electronic notices treated as a relevant indicator of abandonment. Holders need to report and deliver abandoned assets to the Arizona Department of Revenue in their original form. Unclaimed assets may be liquidated by the state through established exchanges or other commercially reasonable methods.

• Texas: SB 1244, effective on Sept. 1, 2025, also applies a three-year dormancy period, starting from a failed communication or last owner activity. If a holder has full control of the private keys, they must report and deliver the virtual currency in its native form. However, if a holder only partially holds the private keys, they must still report but are not required to deliver the digital asset. The comptroller may use qualified custodians and liquidate assets not below the current market price.

California also uses a three-year dormancy period but requires holders to transfer the unliquidated crypto to a state-appointed custodian. The law explicitly prohibits forced liquidation at transfer. While Arizona and Texas permit state liquidation, California delays any conversion to fiat, prioritizing consumer protection.