Kentucky crypto ATM bill adds hardware wallet clause critics say would 'outlaw self-custody'

A Kentucky bill aimed at regulating digital asset kiosks is drawing criticism from crypto advocates after a late amendment introduced language they say could undermine self-custody.

House Bill 380 (HB380), a 77-page proposal focused largely on licensing and oversight of virtual currency kiosk operators, including crypto ATMs, recently picked up a new provision targeting hardware wallet providers.

The broader bill sets out requirements for kiosk operators, including licensing, compliance standards, transaction limits, and consumer protections for users of physical crypto machines.

But tacked on near the end of the latest draft of the bill is Section 33, added as a floor amendment. It states that a hardware wallet provider must "provide a mechanism for, and assist any person" in resetting credentials, including a password, PIN, or seed phrase, needed to access a wallet.

The changes were first flagged by the Bitcoin Policy Institute, which said the requirement would be "technologically impossible" for non-custodial wallets, which are designed so that even manufacturers cannot access or recover a user’s private keys or seed phrase.

"Requiring a backdoor breaks bitcoin’s core security guarantees," the group wrote in an X post, warning the provision could push users toward centralized custodians.

Conner Brown, the organization’s managing director, wrote that "Kentucky is suddenly about to ban self-custody." The Block reached out to Brown for comment.

At odds

The amendment would put HB 380 at odds with Kentucky’s earlier crypto stance.

In March 2025, the state enacted House Bill 701, which established protections for individuals that "allow self-hosted wallet owners to retain independent control of secured digital assets and private keys."

The law was widely seen as reinforcing the right to self-custody and limiting regulatory interference.

HB 380 has passed the Kentucky House and is now under consideration in the Senate, where lawmakers could still revise or remove the amendment before a final vote.

Crypto ATM scrutiny

The scrutiny around HB 380 also comes as states take a harder look at crypto kiosks more broadly, particularly as fraud tied to the machines draws increased attention from lawmakers.

In Minnesota, legislators recently introduced a bill that would ban cryptocurrency kiosks outright following a wave of scams, including cases where elderly residents were pressured into sending large portions of their income to fraudsters.

The proposal would dismantle the state’s existing regulatory framework, with officials arguing that prior safeguards such as transaction limits and disclosure requirements have not been sufficient.