Over the weekend, California Governor Gavin Newsom enacted a law aimed at protecting abandoned Bitcoin (BTC) holdings, which could enhance recovery efforts and decrease the challenges faced by exchanges. This legislative update involves the unclaimed property law (UPL), stating that abandoned Bitcoin must remain in its original format for an extended period and cannot be immediately liquidated by the state.

Previously, states with similar laws required immediate cash conversion of abandoned cryptocurrency, complicating the recovery process for owners while placing additional administrative burdens on exchanges and custodians.

This new legislation highlights the evolving attitude towards cryptocurrencies among lawmakers, potentially setting a precedent for other states on how cryptocurrencies should be handled.

California just passed a bill to seize #Bitcoin left idle on exchanges. After three years of inactivity, assets can be taken by the state under ‘Unclaimed Property’ laws. Bill now heads to the Senate. Source — TFTC (@TFTC21) June 4, 2025

Provisions of the Law

On October 11, Newsom signed SB 822, aligning California with states like Delaware, Illinois, Kentucky, and New York, which have integrated cryptocurrency into their abandoned property regulations.

This unanimously passed law modifies the existing UPL legislation and dictates that Bitcoin is deemed abandoned if it remains inactive in custodial accounts for three years. Relevant actions to avoid this classification include deposits, withdrawals, trades, logging in, or any activity that indicates an owner’s awareness of the asset.

This raised concerns about the state ‘stealing’ crypto, confusing many investors as they cited the crypto maxim: “not your keys, not your coins.”

However, the law is specifically applicable to custodial platforms; personal, non-custodial wallets are exempt. Custodians must also inform owners at least six months after the property is classified as abandoned.

Under this legislation, Bitcoin will not be converted to fiat currency; instead, it will be managed by a state-appointed custodian. The state may only dispose of the asset after a period of 18 months if deemed necessary.

This change allows investors reclaiming abandoned assets to retrieve their Bitcoin in its original form, thus addressing concerns about liquidation. Eric Peterson, policy director for the Satoshi Action Fund, pointed out, “The state will return your Bitcoin back to you directly instead of liquidating it and sending cash.”

Paul Grewal, chief legal officer of Coinbase, commended this law as a positive step towards safeguarding investors’ rights in the crypto space.

Challenges Ahead

Despite this advancement, aligning cryptocurrency with traditional legal frameworks is challenging. Legal experts note that simply updating existing laws to include cryptocurrency might create further confusion rather than clarity.

Current Illinois law, like many others, requires immediate liquidation of abandoned crypto, which undermines the custodial model and locks in a finite value not benefiting from the market fluctuations.

Legal specialists suggest states should modernize their capabilities by hiring external expertise to develop proper custodial systems for cryptocurrency management.

In recent years, the industry has achieved numerous policy wins at the federal level, but state-level changes remain inconsistent.