Kentucky Bill Passes House 85-0 With Anti-Self-Custody Clause
A provision added to Kentucky's House Bill 380 threatens to outlaw self-custodial cryptocurrency wallets in the state. The bill, which passed the House with a decisive 85-0 vote on March 13, includes a last-minute floor amendment known as Section 33. This section mandates that hardware wallet providers must offer a mechanism for resetting a user's password, PIN, or seed phrase. The bill, originally focused on regulating cryptocurrency kiosks, now carries a clause that crypto advocates call a fundamental threat to digital asset ownership.
The Bitcoin Policy Institute (BPI) immediately raised alarms, stating the mandate is "technologically impossible for non-custodial wallets." Hardware wallets are designed specifically so that no one, not even the manufacturer, can access or recover a user's seed phrase. Forcing a recovery mechanism would require a "backdoor," negating the security and privacy that define self-custody and pushing users toward more vulnerable centralized platforms.
Providers Poised to Exit Kentucky Over 'Impossible' Mandate
Industry experts predict that if Section 33 becomes law, hardware wallet providers will likely cease operations in Kentucky rather than redesign their products to include security-compromising backdoors. Joe Ciccolo, founder of BitAML, explained that companies would probably "exit the market altogether" instead of undermining their core security model. This would function as a de facto ban on secure self-custody, severely limiting consumer choice and access to one of the safest methods for storing digital assets.
The proposed state-level restriction stands in sharp contrast to statements from federal regulators. U.S. Securities and Exchange Commission (SEC) officials have previously defended the right to self-custody. Commissioner Hester Peirce, in particular, has been a vocal advocate for financial privacy and individual control over assets.
It baffles me that in this country, which is so premised on freedom, that would even be an issue — of course, people can hold their own assets.
— Hester Peirce, SEC Commissioner.
The bill's swift passage through the House suggests it could move quickly through the Senate, prompting the BPI to send a formal letter to educate lawmakers on the provision's damaging implications before a final vote.
