California has recently passed legislation that allows the state government to take temporary custody of certain unclaimed cryptocurrency assets.
This development, signed into law by Governor Gavin Newsom on October 11, 2025, via Senate Bill 822 (SB 822), amends the state’s Unclaimed Property Law to include digital assets like Bitcoin and Ethereum.
It’s the first U.S. state to explicitly protect unclaimed crypto from forced liquidation, meaning the state must hold assets in their original form rather than selling them for cash.
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Earlier related bills, like Assembly Bill 1052 AB 1052 passed in June 2025, laid groundwork by extending unclaimed property rules to dormant custodial crypto accounts and authorizing state agencies to accept crypto payments.
This isn’t about broad “seizure” of active crypto holdings—it’s an extension of existing unclaimed property rules similar to those for forgotten bank accounts or safe deposit boxes to digital assets.
Crypto held on third-party custodial platforms exchanges like Coinbase or Kraken becomes “unclaimed” after 3 years of inactivity. Inactivity means no logins, deposits, withdrawals, or on-chain transactions.
Custodians must notify owners via email or mail 6–12 months before reporting. If unclaimed, assets transfer to state-appointed licensed custodians, held in original form (e.g., BTC stays as BTC) for 18–20 months. Only then can they be converted to USD if still unclaimed.
Reclaiming Assets
Owners can recover 100% of their crypto or sale proceeds anytime by proving identity—no fees or penalties. The state acts as a temporary steward, not an owner.
Only custodial accounts for California residents. Self-custody wallets such as hardware like Ledger are exempt—the state can’t access them without your private keys.
Enables the state the world’s 4th-largest economy to legally hold crypto, potentially paving the way for Bitcoin reserves. It also aligns with AB 1052’s provisions for businesses and agencies to accept crypto payments.
Critics worry about privacy and overreach, echoing the crypto ethos of “not your keys, not your crypto,” but supporters note it’s already standard for fiat assets in most states.
This builds on California’s Digital Financial Assets Law (DFAL), which requires licensing for crypto businesses starting July 1, 2026, focusing on consumer protections.
Federal regulations on cryptocurrency custody in the United States primarily apply existing financial laws to digital assets, treating them as commodities, securities, or other regulated items depending on their characteristics.
Custody involves the safekeeping of crypto assets like olding private keys for clients, and rules aim to protect against theft, insolvency, and illicit finance while enabling innovation.
Oversight is fragmented across agencies like the Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), Office of the Comptroller of the Currency (OCC), and Financial Crimes Enforcement Network (FinCEN).
Key requirements include using “qualified custodians,” segregation of assets, anti-money laundering (AML) compliance, and robust cybersecurity. The landscape shifted dramatically in 2025 under the Trump administration’s pro-crypto stance.
The January 23, 2025, Executive Order on “Strengthening American Leadership in Digital Financial Technology” established a Presidential Working Group on Digital Asset Markets chaired by David Sacks to propose a unified federal framework for digital assets, including custody standards, stablecoins, and a potential national crypto stockpile.
It also prohibits central bank digital currencies (CBDCs) and promotes self-custody and open blockchain access. This order, combined with rescissions of prior restrictive guidance, has expanded permissible activities for banks and broker-dealers.
SEC oversees custody for crypto classified as securities (e.g., many tokens under the Howey test). Requires qualified custodians for investment advisers and broker-dealers.
Custody Rule (Rule 206(4)-2 under Advisers Act): Advisers must use qualified custodians such as banks, registered broker-dealers for client assets; proposed 2023 amendments expand to all client assets, including non-securities crypto, with segregation and reporting requirements.
Broker-dealers must segregate customer crypto securities; FAQs (May 2025) clarify control via banks or special purpose broker-dealers, even without certificated form.
SAB 122 (Jan. 2025): Rescinds SAB 121, easing balance sheet burdens for custodians holding crypto off-balance-sheet.
CFTC regulates crypto as commodities (e.g., Bitcoin, Ether); focuses on derivatives but extends to spot markets via enforcement. Custody tied to AML for exchanges.
Commodity Exchange Act (CEA): Virtual currencies are commodities; custody must comply with AML/KYC via FinCEN registration as MSBs.
Tokenized Collateral Initiative (2025): Addresses custody for stablecoins and tokenized assets in derivatives, requiring valuation, segregation, and NIST-aligned cybersecurity.
Limited to federally insured banks, registered broker-dealers, futures commission merchants (FCMs), or comparable foreign entities. State-chartered trusts (e.g., NYDFS-licensed) may qualify if they meet fiduciary standards; SEC no-action relief (Sept. 2025) allows their use for funds/RIAs with disclosures.
Segregation and Protection: Customer assets must be segregated from the custodian’s; no rehypothecation (lending). In insolvency, assets are protected from creditors (e.g., via bankruptcy-remote accounts).
NIST cybersecurity standards, third-party due diligence, and liquidity/operational risk assessments. Banks must notify regulators of material changes.
AML/KYC and Reporting: Mandatory under BSA; includes sanctions screening (OFAC) and transaction monitoring. No SIPC protection for non-securities crypto, but contractual safeguards can apply.
Stablecoins: Treated as payment assets; GENIUS Act signed July 2025 requires 1:1 reserves, segregation, and issuance only by regulated institutions effective ~2027.
CLARITY Act (House-passed 2025) and Senate drafts propose CFTC primacy for non-securities crypto; ban rehypothecation. First SEC Custody Rule action against Galois Capital (Sept. 2024, settled 2025) for using non-qualified platforms like FTX; $225K penalty.
These rules promote institutional adoption, banks like BNY Mellon entering custody but maintain safeguards post-FTX. Self-custody remains unregulated federally, aligning with the EO’s emphasis on privacy. The Working Group’s report (due late 2025) could unify rules, potentially expanding CFTC roles.
For custodians, compliance involves audits, disclosures, and tech like multi-sig wallets. Active users should verify platform status; dormant assets risk escheatment under state laws like California’s SB 822. Monitor the Working Group for comprehensive reforms.