The State of California Wants to Steal Your Bitcoin Held on Exchanges, Here's How

The California State Assembly has passed a bill that could allow the state to seize cryptocurrency from inactive exchange accounts, raising concerns among crypto holders about the security of their digital assets. Known as Assembly Bill 1052, or the "Digital Financial Assets Law," the legislation classifies cryptocurrencies held in accounts dormant for three years as unclaimed property, enabling the state to take ownership of them. The bill, which passed the Assembly unanimously with a 78-0 vote, now awaits approval from the California Senate and the governor’s signature to become law. For crypto investors, this development highlights the importance managing your own cryptocurrency keys and accounts, and also your privacy.

The bill’s primary focus is to modernize California’s unclaimed property laws to include digital assets like Bitcoin and Ethereum, addressing a gap in regulations originally designed for traditional assets like bank accounts. Under AB-1052, introduced by Assembly Member Valencia, an account is deemed inactive if the owner has not interacted with it for three years, either through transactions, logins, or communication with the exchange. If the account remains dormant, the state can seize the assets, which are then transferred to a qualified custodian appointed by the State Controller by January 1, 2027. This provision aims to ensure that unclaimed digital assets are securely managed, but it has sparked debate among crypto enthusiasts who value self-custody.

Key Provisions and Implications for Crypto Holders

One of the bill’s core components is its escheatment rules, which outline how and when digital assets are transferred to the state. Crypto exchanges must notify account holders if their accounts, valued at $50 or more, are at risk of being deemed unclaimed, typically 6 to 12 months before the three-year inactivity period expires. This notification must clearly explain how to prevent seizure, such as logging into the account or conducting a transaction. For users, staying proactive by periodically engaging with their accounts is a straightforward way to maintain control of their funds.

Another significant aspect of AB-1052 is its recognition of digital assets as valid payment for goods and services in private transactions. While businesses and individuals in California can legally accept cryptocurrencies, public entities like state agencies are not required to do so. This provision offers legal clarity for merchants and consumers but does not mandate crypto adoption, leaving acceptance optional. For crypto holders, this reinforces the growing legitimacy of digital assets in everyday transactions, though it does little to address concerns about state seizure of inactive accounts.

The bill also addresses the technical complexities of managing digital assets, particularly the role of private keys, which are cryptographic addresses that grant control over cryptocurrencies; an easy way to think of a private key is like your password for your email account. If an exchange lacks full control of the private keys needed to transfer assets, it must hold them until they can be securely transferred to the state’s custodian. This safeguard aims to prevent the loss of assets due to technical limitations, but it highlights the risks of relying on third-party platforms. The crypto community’s mantra, “Not your keys, not your coins,” resonates strongly here, as self-custody through self-custody wallets remains a safer alternative to exchange storage.

For California’s crypto investors, the implications of AB-1052 are clear: neglecting exchange accounts could result in the state claiming your assets as theirs, or in other words, stealing your assets. The bill’s notification requirements offer very little protection. With the legislation likely to take effect on January 1, 2026, if passed, users have time to adopt habits like periodic logins or to move their assets to personal self-custody wallets and away from exchanges. Exchanges, meanwhile, face new compliance burdens, including tracking inactivity and notifying customers, which could increase operational costs. We may even see some exchange stop serving customers in California, such as what happened in 2015 when exchanges left New York due to the ornery BitLicense.

The unanimous passage of AB-1052 in the Assembly suggests strong legislative support, but its fate in the Senate and potential amendments remain uncertain. If signed into law, the bill could set a precedent for other states to regulate unclaimed digital assets, potentially reshaping how crypto holders manage their portfolios. For now, California’s crypto community is urged to take proactive steps to secure their funds, whether by staying active on exchanges or embracing self-custody.