How California’s SB 822 Influences Digital Assets
California’s Senate Bill 822 (SB 822), enacted by Governor Gavin Newsom in October 2025, positions California as the first US state to safeguard unclaimed crypto assets from immediate liquidation.
By equating digital assets to bank accounts and securities, SB 822 mandates that unclaimed cryptocurrencies be transferred in their native state instead of being instantly liquidated. This measure helps avert the forced liquidation of assets like Bitcoin (BTC) and Ether (ETH), which might otherwise lead to unintended taxable events for holders.
SB 822 significantly alters the legal framework for digital assets by incorporating them into California’s Unclaimed Property Law, marking the first state-level regulation to explicitly address crypto in unclaimed property management. Under this statute, account holders can reclaim their original digital assets or, in cases where assets were sold, the net proceeds from such sales by submitting a valid claim to the State Controller.
Introduced by Senator Josh Becker, SB 822 revises California’s long-standing Unclaimed Property Law. It navigated through both legislative chambers in September 2025 before receiving Governor Gavin Newsom’s approval.
Did you know? Self-custodied wallets generally fall outside unclaimed-property laws due to the absence of a third-party “holder.” However, this does not eliminate risks for users. Lost keys, forgotten seed phrases, or an owner’s demise without a succession plan can leave digital assets inaccessible.
Understanding Unclaimed Property and the Challenges Posed by Crypto
Unclaimed property, or escheatment, encompasses financial assets left inactive or abandoned by their rightful owners for a defined period, typically three years. Following this period, the state assumes ownership of the property. Traditionally, dormant bank accounts, uncashed checks, and forgotten securities fell under this category.
Applying unclaimed-property regulations to cryptocurrency presents unique challenges for regulators. The decentralized characteristics of crypto raise issues regarding its classification as cash, property, or a distinct asset class. Additionally, custodians and exchanges confront operational difficulties in transferring assets to the state without triggering taxable events for users.
Initial drafts of California’s SB 822 reportedly mandated custodians to liquidate crypto before remitting. Such a requirement could have adversely affected user interests, complicated compliance processes, and weakened digital-asset ownership rights. Joe Ciccolo from the California Blockchain Advocacy Coalition, who previously provided feedback to the Department of Financial Protection and Innovation about digital-asset regulation, asserted that the final bill navigated these pitfalls effectively, enhancing consumer protection.
Functioning of California’s SB 822
California’s SB 822 establishes a clear mechanism for managing unclaimed cryptocurrency within the framework of the state’s Unclaimed Property Law. It categorizes digital financial assets as intangible property that falls under escheatment regulations.
The bill recognizes assets as abandoned after a three-year period without any sign of owner engagement, such as account activity or communication. Game tokens, loyalty points, and non-crypto digital content are explicitly excluded. Prior to reporting assets to the state, holders (exchanges or custodians) are required to notify owners six to 12 months ahead of time, supplying comprehensive notice content and a form enabling users to reactivate accounts to reset the dormancy clock.
Once classified as unclaimed, holders must transfer the equivalent asset type and amount (without liquidation) within 30 days to a state-designated crypto custodian. The State Controller reserves the right to refuse custody if deemed contrary to the state’s interests. Approximately 18-20 months afterward, the state may convert holdings to fiat; claimants can retrieve either the original crypto (if retained) or its equivalent proceeds. Owners or heirs may submit claims according to the state’s unclaimed property procedures.
Did you know? Claims generally have no statute of limitations once assets are transferred to state custody. This means you or your heirs can reclaim lost crypto many years after its transfer. The claim process requires documentation and proof of ownership.
Practical Application of SB 822
Comprehending how digital assets are classified as unclaimed property in California is essential for custodians and account holders. Here’s a breakdown of a dormant wallet scenario, illustrating the notification and transfer obligations to a state-appointed custodian.
Dormant wallet scenario: Consider Allan, who possesses Bitcoin on a California exchange but does not log in or show any interest for three years. The exchange is obligated to notify him six to 12 months prior to registering the account as unclaimed. If he remains unresponsive, the exchange reports the holding and transfers the crypto, untouched and unliquidated, within 30 days to a state-designated custodian. If Allan returns afterward, he can file a claim with the State Controller’s Office to reclaim his original coins.
Edge cases and caveats: If a holder cannot contact the owner due to inactive contact information or an updated address, the asset still qualifies as unclaimed. If the owner processes a claim after the crypto has been liquidated by the state, there could be queries regarding the valuation date and potential capital gains repercussions per federal tax law.
Compliance for Exchanges: Platforms must keep accurate records of contact attempts and documentation of all owner communications. They also require secure transfer protocols and must utilize standardized owner-notification forms mandated by the State Controller. Furthermore, exchanges need to collaborate with state-designated crypto custodians to ensure compliance.
Significance of SB 822: Why It Matters
California’s SB 822 signifies a substantial transformation in the treatment of digital assets under state law. It has streamlined operations and compliance demands for all involved parties: users, holders, custodians, tax bodies, and regulators.
For crypto users and holders: SB 822 shields against forced liquidation of unclaimed assets and enables owners to reclaim their crypto while in state custody. It also enhances the claims process, like keeping contact information current.
For exchanges and custodians: The legislation imposes robust compliance responsibilities, including record retention, owner notifications, proof of notice, and the transfer of unliquidated crypto to the state.
For tax bodies and regulators: SB 822 could create revenue opportunities if assets are liquidated after a designated period. It establishes California as the first state to ban forced liquidation of unclaimed crypto, setting a regulatory example that may influence other states.
Did you know? Staking rewards and airdrops can complicate unclaimed cryptocurrency. Some jurisdictions expect custodians or holders to maintain assets as they are, including any rewards accrued during custody.
How California’s SB 822 is Setting a Benchmark for Unclaimed Crypto
California’s SB 822 aligns with wider global initiatives to incorporate cryptocurrency into existing property regulations. Several U.S. states, including Arizona and Texas, have begun including digital assets in their unclaimed-property frameworks.
Arizona: In May 2025, Arizona’s HB 2749 integrated “digital assets” and “virtual currency” into its unclaimed property law. It treats assets as abandoned after three years of inactivity without any owner engagement, with ineffective electronic notices considered a valid sign of abandonment. Holders are required to report and submit abandoned assets to the Arizona Department of Revenue in their original form. Unclaimed assets may be liquidated by the state using established exchanges or other commercially viable methods.
Texas: SB 1244, effective September 1, 2025, also enforces a three-year dormancy period starting from the last owner activity or failed communication. If a holder possesses full control of the private keys, they are required to report and deliver virtual currency in its native form. If a holder has only partial control over the private keys, they must still report but are not obliged to deliver the digital asset. The comptroller may employ qualified custodians and liquidate assets not beneath the existing market price.
California also enforces a three-year dormancy period but necessitates that holders transfer unliquidated crypto to a state-appointed custodian. The legislation categorically prohibits forced liquidation at transfer. In contrast, Arizona and Texas allow for state liquidation, whereas California prioritizes consumer protection by delaying any conversion to fiat.
