California Bill Sparks Backlash Over Seizure of Inactive Crypto Wallets

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California Assembly passes bill allowing seizure of dormant crypto wallets after three years of inactivity, drawing mixed reactions from the industry.

 


 

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Self-Custody Advocates Say Bill Undermines Core Principles of Crypto

California lawmakers have passed a bill that allows the state to classify long-inactive crypto wallets as unclaimed property, raising concerns across the digital asset sector. Under Assembly Bill AB-1052, users must interact with their wallets at least once every three years to prevent temporary state custody of their assets.

The bill cleared the state assembly with unanimous support—78 to 0—and is now headed to the Senate, where it may still face amendments. It does not authorize liquidation of the seized assets. Instead, crypto holdings would be held in kind and made available for rightful owners to reclaim, provided they verify their identity.

While the bill attempts to address unclaimed digital property in line with existing laws on bank accounts or insurance payouts, its implications for privacy and ownership in crypto have stirred division.

 

A Shift in the Meaning of “Not Your Keys”

The crypto mantra “Not your keys, not your crypto” was originally coined to promote self-custody—encouraging holders to manage their funds independently via cold wallets. California’s bill introduces a new wrinkle: even if users control their keys, inactivity alone may trigger state intervention, at least when the assets are held via custodial platforms.

The legislation places primary focus on exchange-based wallets and custodial services, where user interaction can be monitored. Assets stored in cold wallets, where users maintain full control and privacy, are unlikely to be affected.

 

Supporters See Order; Critics See Overreach

Supporters of the bill argue it introduces structure into a chaotic part of the financial system. For them, the state’s involvement in safeguarding dormant crypto ensures that funds don’t vanish into inaccessible ledgers, especially when no heirs or contact methods exist.

By requiring only minimal engagement every three years—and by holding rather than liquidating the assets—the law aims to balance asset protection with owner rights.

But critics see it differently. Privacy advocates and long-time crypto users argue the bill challenges the very ethos of digital sovereignty. They point out that many early adopters and crypto “whales” have gone silent for years without losing control or access. For these users, the idea of forced re-engagement to avoid temporary seizure feels like coercion.

 

Implications for Custodial vs. Self-Custody

One subtle outcome of the bill is its implicit endorsement of self-custody. By focusing on wallets held by third parties, the legislation leaves cold wallets largely untouched. That may push more users toward holding assets off exchanges to ensure uninterrupted control.

For fintech firms operating in the custodial space, the bill adds new compliance risks. Platforms will need to implement tracking systems for user activity and develop re-engagement protocols to help clients avoid triggering the new law.

 

What Comes Next

The bill’s future depends on the California Senate, which could amend key provisions before a final vote. However, its unanimous support in the Assembly signals strong momentum. If passed, California would become one of the first jurisdictions to formally regulate dormant crypto in line with traditional unclaimed property laws.

As digital assets become more integrated into mainstream finance, legislation like AB-1052 highlights the growing tension between crypto’s foundational principles and state oversight. Whether seen as protection or intrusion, one thing is clear: inactivity may no longer be neutral.

For crypto users, staying engaged may soon be more than good practice—it could be the difference between ownership and forfeiture.


 

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