California Governor Gavin Newsom signed a bill over the weekend that explicitly protects abandoned Bitcoin (BTC) assets, providing legal clarity for custodians and cryptocurrency holders.
The bill updates the Unclaimed Property Law (UPL), with a core provision stating that abandoned Bitcoin or cryptocurrency assets transferred to the state must be held in their original form for a certain period and cannot be immediately converted to cash.
Other states with similar regulations typically require cryptocurrencies to be immediately converted to cash, which not only complicates the recovery of lost assets but also imposes administrative burdens on exchanges and crypto custodians.
California's new law reflects lawmakers' growing understanding and acceptance of cryptocurrency and may influence regulatory approaches in other states in the future.
California just passed a bill to seize #Bitcoin left idle on exchanges. After 3 years of inactivity, assets can be taken by the state under 'Unclaimed Property' laws. Bill now heads to the Senate. pic.twitter.com/nl1pQPWkvW
Attorney Cassie Arntsen noted in the Iowa Law Review that state governments typically rely on "escheatment" (the property belonging to the state) and the sale of abandoned property as a source of revenue. As cryptocurrency becomes more prevalent, state governments "are continuously revising unclaimed property laws to allow custodians to take over these assets as a new source of income."
On October 11, Gavin Newsom signed SB 822, making California one of the states, alongside Delaware, Illinois, Kentucky, and New York, to include cryptocurrency in the management of abandoned property.
The law passed unanimously, representing a significant update to UPL legislation that has existed for decades.
The new regulation states that if cryptocurrency is idle in an exchange or custodial account for three years without any activity, it is considered abandoned. Such activities include:
- Deposits and withdrawals
- Trading
- Logging in
- Other "reasonable proof" that the account holder is aware of their cryptocurrency holdings.
This initially raised concerns among crypto observers, who feared that the state government was attempting to seize their cryptocurrency. Some cited the cryptocurrency mantra, "Not your keys, not your coins." Others speculated that the state might somehow transfer cryptocurrency from their wallets and then sell it.
Notably, the law only applies to custodial platforms; non-custodial wallets are unaffected. Even so, custodians must provide notice at least six months after the state government determines the property is abandoned.
California's law differs from those in other states, as abandoned Bitcoin or cryptocurrency does not need to be converted to fiat currency. Instead, it will be handed over in its original form to a state-designated custodian. In other states, abandoned and escheated Bitcoin is immediately converted to cash.
Once the state government possesses the cryptocurrency, it may sell it after 18 months if deemed necessary or beneficial.
Crucially, this will allow investors to reclaim their Bitcoin in full when claiming abandoned property. Eric Peterson, policy director of the Bitcoin advocacy group Satoshi Action Fund, stated, "The state government will return your Bitcoin to you in Bitcoin form, rather than liquidating it for cash years ago."
On October 14, Coinbase Chief Legal Officer Paul Grewal praised the new law as a step in the right direction for protecting cryptocurrency investors' rights.
Cryptocurrency and blockchain technology often clash with outdated laws. Simply incorporating cryptocurrency into existing legal frameworks does not guarantee legal certainty and can sometimes lead to more uncertainty.
Jones Day attorneys noted that many states, like Illinois, require assets to be immediately liquidated, which "undermines the custodial nature of cryptocurrency." "While owners can still claim the value of the asset at the time of liquidation, that value is locked in, preventing them from benefiting from market fluctuations."
This practice is likely to pose challenges for state governments, investors, and custodians alike. The law states that investors are entitled to the value of the asset at the time of liquidation but have no right to claim profits from any price increases after liquidation.
However, historical experience suggests that this provision "will not prevent cryptocurrency owners from suing when the value of their assets skyrockets tenfold after liquidation." "When custodians liquidate cryptocurrency, owners will not stand idly by."
Arntsen also emphasized that states should hire external experts to build the necessary wallet and custodial capabilities to store cryptocurrency and noted that state governments could utilize exchanges like Coinbase to liquidate escheated assets.
Over the past year, the crypto industry has achieved several policy breakthroughs in the U.S. Stablecoins now have clear legal regulations, and Congress is advancing the Responsible Financial Innovation Act, which is the cryptocurrency market structure bill. However, progress at the state level remains slow.
Related: Uniswap adds support for Solana (SOL) in its web application, targeting the $140 billion market blue ocean.
Original article: “Lost Bitcoin (BTC) in California? You Might Be Able to Get It All Back”
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