California’s Assembly Bill 1052 (AB 1052) introduces a sweeping regulatory framework for digital assets, but for many crypto holders, the most immediate concern is how the law treats dormant custodial accounts. If you’re a California resident holding crypto on a centralized exchange, this law could directly affect your access to those assets. Withum’s Digital Currency and Blockchain Technology Services Team has broken down what you need to know and how to prepare.
What Is AB 1052?
AB 1052 is a comprehensive law that:
- Requires licensing for digital asset businesses operating in California.
- Recognizes crypto as a valid form of payment.
- Establishes rules for handling dormant digital assets held by custodians.
While the law touches on many areas, the dormant asset provision is especially important for long-term holders and estate planners.
Dormant Digital Assets: A New Category of Unclaimed Property
What Does “Dormant” Mean?
Under AB 1052, a custodial crypto account is considered dormant if there has been no user-initiated activity for three consecutive years. This includes:
- No logins.
- No trades or transfers.
- No deposits or withdrawals.
- No responses to communications from the platform.
Suppose the account meets these criteria and the user’s last known address is California. In that case, the custodian must report the account as unclaimed property and transfer the assets to the State Controller’s Office.
What Happens to Dormant Assets?
- Held in Native Form: The state is prohibited from converting the crypto to fiat. Assets must be held in their original digital form.
- Reclaimable by the Owner: Owners can reclaim their assets by verifying their identity and submitting a claim through the state’s unclaimed property process.
- Managed by a Licensed Custodian: By January 1, 2027, the state must appoint a licensed digital asset custodian to manage these escheated assets.
Who Is Affected?
- California Residents: If your custodial account lists a California address, your assets fall under this law.
- Custodial Platforms: Centralized exchanges and wallet providers are responsible for identifying and reporting dormant accounts to the state.
Note: This law does not apply to self-custodied wallets or cold storage solutions.
Why This Matters for Crypto Holders
Many crypto investors follow a “HODL” strategy—buy and hold for the long term without frequent interaction. AB 1052 challenges this approach by introducing a legal risk to inactivity.
Even if you intend to hold indefinitely, the state may interpret prolonged silence as abandonment. This could result in temporary loss of access and a burdensome claims process to recover your assets.
How to Protect Your Crypto from Being Declared Dormant
Withum recommends the following proactive steps:
1. Review Your Custodial Accounts
Identify any accounts at risk of dormancy, especially those you rarely access.
2. Maintain Periodic Activity
Reset the dormancy clock by:
- Logging into your account.
- Making a small trade or transfer.
- Depositing or withdrawing funds.
- Responding to emails or messages from the platform.
- Taking any action that shows you’re still aware of and managing the account.
3. Document Ownership
Keep detailed records of your holdings, including:
- Platform names and login credentials.
- Wallet addresses.
- Transaction history.
- Backup recovery methods.
This is especially important for estate planning and heirs needing to reclaim assets.
4. Consider Self-Custody
Moving your assets to a private wallet may be a better fit if you prefer to hold long-term without regular interaction. Self-custodied wallets are not subject to AB 1052.
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Other Key Provisions of AB 1052
While dormant assets are a significant focus, the law also includes:
- Licensing Requirement (Effective July 1, 2026): Unless exempt, all digital asset businesses operating in California must be licensed by the Department of Financial Protection and Innovation (DFPI).
- Legal Recognition of Crypto Payments
- Crypto can be used as a valid payment for goods and services.
- Public entities cannot ban or restrict their use.
- No additional taxes or fees can be imposed solely because crypto was used.
- Statewide Preemption: Local governments cannot override or create conflicting rules. AB 1052 applies uniformly across California.
Looking Ahead
AB 1052 is a significant step in California’s effort to regulate digital assets. While it aims to protect consumers and bring clarity to the crypto space, it also introduces new responsibilities for holders and custodians.
Withum will continue to monitor the law’s implementation and provide guidance to help clients stay compliant and secure.
Author: Rhett Chrystal, MBA | [email protected]
Contact Us
For more information on this topic, please contact a member of Withum’s Digital Currency and Blockchain Technology Services Team.
