Last weekend, California Governor Gavin Newsom signed a bill to preserve abandoned Bitcoin (BTC) holdings. This is a step forward that could bring legal clarity to custodians and crypto holders.
The bill was an update to the Unclaimed Property Law (UPL) and included one important provision. It stated that abandoned Bitcoin or virtual currency holdings transferred to a state must be maintained in their original form (not sold for cash) for a certain period of time.
States with similar laws require that virtual currency be converted into cash immediately. This can make it difficult to recover lost assets and also creates an administrative burden for exchanges and crypto custodians.
California’s new law reflects the growing adoption and understanding of cryptocurrencies among lawmakers. It could also impact how other states regulate cryptocurrencies in the future.
California just passed a foreclosure bill. #bitcoin It will be left on the exchange.
If there is no activity for three years, the assets can be forfeited by the state under the “unclaimed property” law.
Bill now heads to the Senate. pic.twitter.com/nl1pQPWkvW
— TFTC (@TFTC21) June 4, 2025
Abandoned Bitcoin will remain Bitcoin…for a while
The state government uses escheats, which return property to the state, and the sale of abandoned properties as a source of income. As cryptocurrencies grow in popularity, states are “increasingly amending their unclaimed property laws to allow state administrators to manage these assets as an untapped source of revenue,” attorney Kathy Arnsen wrote in the Iowa Law Review.
On October 11, Newsom signed SB 822. With this, California joins Delaware, Illinois, Kentucky, and New York as states that have included cryptocurrencies in their abandoned property laws.
The unanimously passed legislation represents a significant update to the decades-old UPL Act that was already planned.
The new terms stipulate that virtual currency will be considered abandoned if it remains in an exchange or custodial account without any action taken for three years. These actions include:
This initially caused concern among cryptocurrency watchers, who were under the impression that nation states were trying to steal cryptocurrencies. One person quoted the cryptocurrency slogan: “Not a key, not a coin.” Others believed that the state could somehow transfer cryptocurrencies from your wallet and sell it.
In particular, this law only applies to storage platforms. Non-custodial wallets are not affected. Even then, the administrator must file a notice at least six months after the state deems the property abandoned.
Related: California Governor signs law establishing safeguards for AI chatbots
California law is different from other states in that it does not require abandoned Bitcoin or virtual currency to be converted into fiat currency. Instead, it will be handed over intact to a state-appointed administrator. In other states, abandoned and decommissioned Bitcoins are quickly converted into cash.
Once a state acquires a virtual currency, it can only sell it after 18 months if it deems it necessary or beneficial.
Importantly, this allows investors to get their full Bitcoin back if they claim the abandoned property. “Instead of liquidating Bitcoin years ago and sending it in cash, the country will be sending it back in Bitcoin,” said Eric Peterson, policy director at the Satoshi Action Fund, a Bitcoin advocacy group.
On October 14, Coinbase Chief Legal Officer Paul Grewal hailed the new law as a step in the right direction to protect the rights of crypto investors.
Lawmakers struggle to reconcile laws and cryptocurrencies
Cryptocurrency and blockchain technology have often come into conflict with outdated laws. Merely including cryptocurrencies under an existing umbrella does not necessarily provide legal certainty and may even make things more uncertain in some cases.
As the Chicago, Illinois-based legal team at Jones Day, noted, local state laws regarding abandoned cryptocurrencies “represent an administrative burden for crypto custodians and may be unwelcome to long-term crypto investors.”
Illinois law (and the laws of many other states) requires immediate liquidation, which “undermines the custodial nature” of virtual currency, Jones Day lawyers said. “Owners can still collect value, but that value is fixed and finite and cannot ride the rise and fall of the market.”
This will likely create headaches for states, investors, and administrators alike. By law, investors are entitled to receive the value of their cryptocurrencies upon sale, but do not have a claim to recover any increase in value after the sale.
Still, this is unlikely to “deter legal action by irate owners of cryptocurrencies that have increased tenfold since liquidation date.” According to historical trends, “when owners liquidate their cryptocurrencies, they do not stand by as obedient observers.”
Arnsen also stressed that lawmakers need to bring administrative skills into the modern era. He recommended that states hire outside experts to create the necessary wallets and custodial facilities to store cryptocurrencies. He also said the state could use exchanges like Coinbase to liquidate escalated assets.
The cryptocurrency industry achieved several policy victories in the United States last year. Stablecoins have clear laws, and Congress is working on a major market structure bill for cryptocurrencies, the Responsible Financial Innovation Act. But at the state level, incremental progress is beginning.
magazine: Sharplink executives shocked by BTC and ETH ETF holding levels: Joseph Chalom