How California’s SB 822 will affect 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 defend unclaimed crypto assets against forced liquidation.
By equating digital assets to bank accounts and securities, SB 822 mandates that unclaimed cryptocurrencies remain in their original form rather than being liquidated right away. This measures prevents the forced sale of assets like Bitcoin (BTC) or Ether (ETH), avoiding unintended taxable events for holders.
SB 822 redefines the legal status of digital assets by incorporating them into California’s Unclaimed Property Law, establishing the first state framework that clearly recognizes crypto in the regulations concerning holding and transferring unclaimed property. According to this law, account holders can retrieve their original digital assets or, if sold, the net proceeds from such sales by filing a legitimate claim with the State Controller.
Originated by Senator Josh Becker, SB 822 modernizes California’s long-standing Unclaimed Property Law. It navigated through both legislative chambers in September 2025 before receiving the governor’s signature.
Did you know? Self-custodied wallets generally fall outside the scope of unclaimed-property regulations due to the absence of a third-party “holder.” However, this doesn’t eliminate risks for users. Lost keys, forgotten seed phrases, or the death of an owner lacking an inheritance plan can leave digital assets permanently inaccessible.
What constitutes unclaimed property, and what challenges does crypto present?
Unclaimed property, often referred to as escheatment, denotes financial assets that remain inactive or abandoned by their rightful owners for a designated timeframe, typically three years. After this period, the state assumes control of the property. Traditionally, dormant bank accounts, uncashed checks, or forgotten securities were subjects of escheatment.
Implementing unclaimed-property laws within the realm of cryptocurrency posed considerable obstacles for regulators. The decentralized nature of crypto raised issues regarding its classification as cash, property, or a distinct asset class. Additionally, custodians and exchanges faced practical difficulties in transferring assets to the state without triggering taxable events for users.
Initial drafts of California’s SB 822 allegedly required custodians to liquidate crypto prior to remittance. Such a requirement could have negatively impacted user interests, complicated compliance, and undermined principles of digital asset ownership. Joe Ciccolo from the California Blockchain Advocacy Coalition, who had previously offered insights to the Department of Financial Protection and Innovation on digital asset regulation, noted that the finalized version circumvented these pitfalls and enhanced consumer protection.
Operational framework of California’s SB 822
California’s SB 822 establishes a clear framework for managing unclaimed cryptocurrency under the state’s Unclaimed Property Law. It categorizes digital financial assets as intangible property governed by escheatment regulations.
The bill identifies assets as abandoned after three years in the absence of any signs 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) are required to notify owners six to 12 months in advance, including detailed notice content and a form that allows users to reinitiate accounts to restart the dormancy timeline.
Upon becoming unclaimed, holders must transfer the identical type and quantity of asset (without liquidation) within 30 days to a state-appointed crypto custodian. The State Controller may reject custody if deemed contrary to state interests. Following approximately 18-20 months, the state may convert holdings to fiat; claimants can retrieve either the original crypto (if still held) or its proceeds. Owners or heirs may submit claims in accordance with the state’s unclaimed property claim procedures.
Did you know? Claims generally have no statute of limitations once holders transfer assets to state custody. This means that you or your heirs can reclaim lost crypto years after the fact. The claim process necessitates proper paperwork and proof of ownership.
Practical application of SB 822
Grasping how digital assets are categorized as unclaimed property in California is vital for account holders and custodians. Here’s a step-by-step guide through a dormant wallet scenario, detailing the notification and transfer procedure to a state-designated custodian.
Dormant wallet scenario: Imagine Allan holds Bitcoin on a California exchange but fails to log in or show any form of interest for three years. The exchange is required to send him a notice six to 12 months prior to classifying the account as unclaimed. Should he not 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 regain his original coins.
Edge cases and considerations: If a holder is unable to contact the owner due to inactive contact information or a changed address, the asset still qualifies as unclaimed. If the owner files a claim post-liquidation by the state, there may be issues surrounding valuation date and potential capital gains consequences under federal tax regulations.
Compliance for exchanges: Platforms are required to retain contact records and documentation of all owner communications. They must also implement secure transfer procedures and utilize standardized owner-notification forms mandated by the State Controller. Additionally, exchanges should coordinate with state-appointed crypto custodians to ensure compliance.
SB 822’s Implications: Why it is significant
California’s SB 822 signifies a major shift in the handling of digital assets under state law. It has streamlined operations and compliance for various stakeholders: users, holders, custodians, tax authorities, and regulators.
For crypto users and holders: SB 822 halts forced liquidation of unclaimed assets and permits owners to recover their property while it remains in state custodianship. It also enhances the claiming process, such as ensuring contact information is current.
For exchanges and custodians: The legislation enforces substantial compliance requirements, including record-keeping, owner notifications, proof of notice, and the transfer of unliquidated crypto to the state.
For tax authorities and regulators: SB 822 has the potential to generate revenue if assets are sold after a prescribed waiting period. This positions California as the first state to outlaw forced liquidation of unclaimed crypto, creating a regulatory model that other states might adopt.
Did you know? Staking rewards and airdrops can complicate unclaimed crypto. Some jurisdictions require holders or state custodians to maintain assets as they are, potentially including rewards accumulated during custody.
California’s SB 822: Setting the benchmark for unclaimed crypto
California’s SB 822 harmonizes with wider global initiatives to integrate cryptocurrency into existing property laws. Various US states, including Arizona and Texas, have begun steps to incorporate digital assets into their unclaimed property frameworks.
Arizona: In May 2025, Arizona’s HB 2749 included “digital assets” and “virtual currency” in its unclaimed property statute. It identifies assets as abandoned after three years with no owner activity, treating undeliverable electronic notifications as a relevant sign of abandonment. Holders must report and deliver abandoned assets to the Arizona Department of Revenue in their original form. Unclaimed assets may be liquidated by the state through approved exchanges or other commercially viable methods.
Texas: SB 1244, which becomes effective on Sept. 1, 2025, also applies a three-year dormancy span from either a failed communication or last owner activity. If a holder retains complete control of the private keys, they must report and deliver the virtual currency in its native form. However, if a holder partially possesses the private keys, they must still report but are not obligated to deliver the digital asset. The comptroller may utilize qualified custodians and liquidate assets at or above the current market rate.
California similarly operates on a three-year dormancy timeframe but obligates holders to transfer unliquidated crypto to a state-appointed custodian. The law specifically forbids forced liquidation upon transfer. While Arizona and Texas allow state liquidation, California prioritizes consumer protection by postponing any conversion to fiat.
