Lost your Bitcoin in California? Good news, you might actually get it back!

If you’ve ever worried about losing track of your Bitcoin stash in California, listen up! A brand new law just signed by Governor Gavin Newsom means your abandoned crypto might not be immediately turned into cash by the state. This is a pretty big deal and could make it much easier for you to recover your digital assets, while also easing the burden on crypto exchanges.

Here’s the gist: California’s updated “unclaimed property law” now says that if your Bitcoin or other crypto ends up with the state because it’s been abandoned, it has to stay in its original digital form for a certain period. Other states with similar laws typically force a quick sale of that crypto into regular cash, which can be a nightmare if you try to get it back, and a real headache for crypto companies.

This new law shows that lawmakers in California are really starting to understand and embrace cryptocurrency. It could even set a precedent for how other states handle crypto in the future.

“Abandoned Bitcoin stays Bitcoin… For a while”

You might not know this, but state governments actually make money from “escheatment” – that’s when property that’s been abandoned officially reverts to the state, which then sells it. As crypto becomes more popular, many states have been eager to tap into this as a new source of revenue.

On October 11th, Governor Newsom made it official by signing SB 822 into law. With this, California joins Delaware, Illinois, Kentucky, and New York in having specific laws for abandoned crypto.

The law, which passed without a single “no” vote, updates decades-old legislation. It basically says your crypto is considered “abandoned” if it sits in an exchange or custodian account for three years without any activity. What counts as activity? Things like making deposits or withdrawals, trading, logging in, or any other action that clearly shows you know you have crypto in that account.

Now, this initially made some people in the crypto community a bit nervous. You know the saying, “not your keys, not your coins,” right? Some worried the state was somehow going to swoop in and steal their crypto straight from their wallets and sell it off.

But here’s a crucial point: this law only applies to crypto held on custodial platforms (like exchanges). If you’re using a non-custodial wallet where you control your own private keys, you’re not affected. Even then, the platform has to notify you within six months of the state deciding your property is abandoned.

What makes California’s law truly stand out is that your abandoned Bitcoin or other crypto doesn’t have to be immediately converted into fiat currency. Instead, it gets handed over to a state-appointed custodian, still in its original digital form. Only after 18 months can the state decide to sell it, and only if they think it’s necessary or beneficial.

And here’s the best part: if you come forward to claim your abandoned property, you’ll get your Bitcoin back as Bitcoin, not just a cash equivalent of what it was worth years ago. Eric Peterson, policy director for the Satoshi Action Fund, confirmed this, saying, “The state will send you your Bitcoin back in Bitcoin, rather than liquidating it years ago and sending it in cash.” Paul Grewal, the chief legal officer at Coinbase, even praised the new law as a positive step for crypto investor rights.

Old laws vs. new tech: a constant battle

It’s no secret that cryptocurrencies and blockchain technology often butt heads with outdated laws. Just trying to squeeze crypto into existing legal frameworks can often create more confusion than clarity.

Take Illinois, for example. Lawyers there at Jones Day noted that their state’s law, which demands immediate liquidation of abandoned crypto, created a “huge administrative burden” for custodians and wasn’t exactly popular with long-term crypto investors. The problem is, once your crypto is sold for cash, “that value is now fixed and finite, unable to ride the ebbs and flows of the market.”

This kind of situation is a headache for everyone involved – the state, investors, and custodians. While investors can get back the cash value from when it was sold, they can’t claim any increase in value that happened afterward. And let’s be real, an “angry owner of crypto that increased tenfold” since it was sold isn’t likely to just sit back and do nothing.

Legal experts like Cassie Arntsen have pointed out that lawmakers really need to bring their administrative capabilities into the modern age. This might mean hiring outside help to set up the necessary wallets and custody solutions, or even using an exchange like Coinbase to liquidate any assets that do get escheated.

While the crypto industry has seen some big policy wins federally in the US recently (like clearer stablecoin laws and ongoing work on the Responsible Financial Innovation Act), progress at the state level is still a bit of a patchwork. California’s new law is a significant step forward, showing a more nuanced understanding of digital assets.