The Kentucky cryptocurrency ATM regulatory bill's new hardware wallet provision has been criticized for potentially "prohibiting users from self-custody."

Techub News reports, according to The Block, the HB380 bill passed by the Kentucky House of Representatives had a new Section 33 amendment added during the final stages of deliberation, requiring hardware wallet providers to offer users a mechanism to reset passwords, PINs, or seed phrases. In response, the Bitcoin Policy Institute criticized this requirement as "technically impossible" for non-custodial wallets, because the design of non-custodial wallets inherently ensures that manufacturers cannot access or recover user private keys. Mandating a backdoor would undermine Bitcoin's core security guarantees and could force users to turn to centralized custodians.

Furthermore, this clause also conflicts with the HB701 bill passed by Kentucky in March 2025. The latter explicitly protects users' independent control over self-custodied wallets and private keys. Currently, HB380 has passed the Kentucky House of Representatives and is under review in the Senate. Legislators still have the possibility to amend or delete this amendment before the final vote.