California’s Landmark SB 822 Law Protects Unclaimed Crypto from Forced Liquidation, Bolstering Digital Property Rights

In a significant victory for digital asset holders, California Governor Gavin Newsom has officially signed Senate Bill 822 (SB 822) into law. Effective January 1, 2026, this landmark legislation fundamentally alters how unclaimed cryptocurrency is treated within the state, mandating that dormant digital assets must remain in their native form rather than being liquidated. The move is a critical step towards solidifying property rights in the decentralized economy and offers unprecedented protection against the forced sale of digital wealth.

A Landmark for Digital Asset Rights

California’s SB 822 specifically addresses the escheating process for digital assets. Escheatment is the legal process by which unclaimed property is transferred to the state. Traditionally, when traditional assets like stocks or bank accounts remain dormant for a specified period, states can take custody and often liquidate them into fiat currency. SB 822 carves out a crucial exception for cryptocurrencies, recognizing their unique nature as a distinct asset class.

• Native Form Mandate: The law explicitly requires that unclaimed digital assets, such as Bitcoin and Ethereum, be held by the state in their original cryptocurrency form. This prevents immediate conversion to U.S. dollars.
• Owner’s Intent Preserved: By maintaining assets in native crypto, the law acknowledges that owners might prefer to reclaim the specific digital asset rather than its depreciated fiat value at the time of escheatment.
• Broad Scope: While initial discussions often centered on Bitcoin, the law applies to a wide range of virtual currencies, stablecoins, and potentially other digital assets held by custodians.

Protection Against Forced Liquidation

The primary benefit of SB 822 is its direct prohibition of forced liquidation. In the past, if a crypto exchange or custodian deemed an account “unclaimed” after a certain period, they might have been legally compelled to liquidate the assets and hand over the fiat proceeds to the state. This often led to significant losses for owners who eventually reclaimed their property, especially if the crypto market had appreciated substantially during the dormancy period.

This protection is particularly vital in the volatile crypto market. An owner reclaiming their Bitcoin after several years would receive Bitcoin, not the much lower fiat equivalent from an earlier sale. This ensures that the potential for long-term appreciation, a core investment thesis for many crypto holders, is preserved even in cases of dormancy.

Implications for Holders and Industry

For individual crypto holders in California, SB 822 offers a new layer of security and peace of mind. It mitigates the risk of losing out on future gains due to administrative dormancy rules. This legislative precedent could also influence other states and even federal policy, potentially leading to broader adoption of similar consumer protections across the United States and beyond.

For crypto custodians and exchanges operating within California, the law introduces new operational considerations. They will need to adjust their escheatment procedures to comply with the native form requirement, potentially developing new cold storage solutions or secure protocols for managing unclaimed digital assets on behalf of the state. While this might add initial compliance costs, it also signals a maturing regulatory environment that understands and respects the unique characteristics of crypto.

Navigating Digital Inheritance and Loss

The issue of unclaimed digital assets often arises in scenarios of forgotten passwords, lost private keys, or even the unfortunate passing of a digital asset owner without a clear estate plan. SB 822 provides a crucial safety net in these situations, ensuring that the intrinsic value and form of the asset are maintained until a rightful heir or owner can step forward. This could simplify the often-complex process of digital inheritance and reduce friction for families attempting to recover assets.

Moreover, the law encourages better practices from custodians in tracking and communicating with their users, fostering a more transparent and user-centric ecosystem. As digital assets become increasingly integrated into mainstream finance, such robust legal frameworks are essential for building long-term trust and fostering widespread adoption.

Conclusion

California’s enactment of SB 822 marks a progressive and critical step in the evolution of cryptocurrency regulation. By mandating the preservation of unclaimed digital assets in their native form, the state has affirmed the unique value proposition of cryptocurrencies and provided a robust shield for individual property rights. This legislative foresight not only protects investors from arbitrary liquidation but also sets a significant precedent for how jurisdictions can thoughtfully integrate digital assets into existing legal frameworks, paving the way for greater mainstream acceptance and security for all crypto holders.