The Crypto Seizure Conundrum of Balancing Justice AND Property Rights
Crypto scams are no longer fringe news—they’re a front-page reality. As criminals become more sophisticated, lawmakers are scrambling to respond. One emerging trend? A renewed push for the seizure of cryptocurrency assets before conviction.
That’s right—under certain bills currently proposed, law enforcement may soon have broader authority to seize crypto assets linked to suspected fraud or exploitation. But with great power comes great risk. These proposed laws walk a tightrope between rightfully protecting victims and prematurely penalizing potentially innocent holders.
But drawing the line between proactive enforcement and overreach isn’t easy—especially when the asset in question isn’t a duffel bag of cash, but a wallet of code with real, fluctuating value. Move too slowly, and fraudsters vanish with the funds. Move too fast, and you risk freezing assets that may not belong to the bad actor at all.
To understand the stakes, let’s look at how crypto seizures are playing out right now at the federal level—and what they signal about the direction we’re headed.
The Seizure Surge as a Sign of the Times
Let’s start with the federal picture. In March 2025, the U.S. Justice Department seized over $200,000 in crypto linked to Hamas fundraising efforts. That seizure—part of a broader investigation tracking over $1.5 million—was celebrated as a win for national security and a demonstration of how digital asset tracing can cut off illicit funding at the source.
In tandem, President Trump signed an executive order establishing a Strategic Bitcoin Reserve, formalizing the government’s role as both enforcer and (somewhat ironically) crypto asset holder. A good chunk of the government’s estimated 200,000+ BTC stash? You guessed it—confiscated in criminal investigations.
The takeaway is clear: seizures are no longer isolated events. They’re becoming tools of policy, finance, and national security.
What Connecticut and Virginia Are Proposing
A Tale of Two Bills with the Same Goal and Different Risks
Connecticut’s HB 5237
This proposed bill aims to curb pig butchering scams by:
• Defining digital currency as a monetary instrument in the state penal code;
• Allowing pre-conviction confiscation of digital wallets linked to suspected theft; and
• Establishing a victim compensation fund from those seized assets.
But here’s the problem: the language in the bill refers to “digital wallets”—not wallet addresses. That distinction matters. A digital wallet can contain dozens—or hundreds—of assets, many of which may have no connection to the alleged crime. Under this bill’s current language, law enforcement could seize the entire wallet, not just the specific tainted funds. That opens the door to serious overreach, with innocent assets caught in the crossfire.
Virginia’s SB 825
Virginia’s bill takes a broader—and arguably more responsible—approach. It doesn’t single out cryptocurrency. Instead, it treats crypto like any other asset of value, placing emphasis on the underlying illicit activity, especially cases involving financial exploitation of vulnerable adults. The language is more carefully crafted, and the process includes judicial oversight, probable cause, and opportunities for asset return where appropriate.
In short, Connecticut’s bill goes deep into crypto specifics, but may have technical blind spots. Virginia’s stays higher level—and that may actually make it more effective and defensible.
The Bigger Legal Dilemma is What Happens to Innocent Assets?
Here’s where it gets sticky.
Cryptocurrency isn’t like cash in a mattress—it’s traceable, divisible, and often commingled in wallets that contain both clean and tainted funds. That makes pre-conviction seizures incredibly risky. One wrong move, and law enforcement might lock down wallets belonging to exchanges, vendors, or even innocent third parties who’ve had their crypto swept up in a broader net.
The legal safeguard? Due process. But with new bills enabling pre-conviction action, critics argue the burden of proof may shift too far toward enforcement—especially if hearings happen after wallets are frozen.
The outcome? We risk undermining the very trust in property rights that crypto, at its best, was designed to protect.
Perspectives Express Support, Concern, and Caution
Supporters of these bills argue that the new tools are long overdue.
“Too many victims—especially seniors—lose their life savings to crypto scams that law enforcement can’t act on quickly enough,” said Senator Ryan T. McDougle, who introduced Virginia’s SB 825. “By the time we get a conviction, the funds are gone.”
That urgency is real. But so are the concerns.
Privacy advocates and crypto policy experts caution that expanding seizure powers without airtight legal protections could set a dangerous precedent. Precedents that might bleed into other areas of crypto regulation—business licenses, AML enforcement, or tax audits.
Some are calling for:
• Clearer definitions of what qualifies as “probable cause” for crypto assets;
• Requirements for third-party audits before any seizure;
• Transparency in how seized funds are handled, spent, or returned.
In other words, more guardrails, not fewer.
Where Do We Go From Here?
Crypto is no longer a sideshow—it’s center stage. And with that prominence comes a new class of legal and ethical questions.
Seizing assets can help dismantle fraud networks and return stolen funds. But without proper oversight, it can also trample the very principles—transparency, privacy, decentralization—that gave rise to crypto in the first place.
BitAML’s take? Striking the right balance is possible—but only if compliance professionals, regulators, and the crypto industry keep the conversation going. Education, strong AML frameworks, and open dialogue are the best tools we have to move forward safely and ethically.
A Call for Proactive Compliance
Whether you operate a Bitcoin ATM, run a DeFi project, or simply hold assets on behalf of others, now’s the time to review your exposure. Understand how state seizure laws might affect your business and get ahead of potential enforcement.
Crypto compliance is no longer just a checkbox—it’s a shield.
As crypto seizure laws evolve, understanding your compliance obligations—and your rights—is more important than ever. BitAML can help you stay ahead of emerging regulations, prepare for audits, and protect your customers. Book a free discovery call today with our expert team. Let’s make sure you’re ready for what’s next.
