Fears over money laundering and terrorism financing are causing governments to crack down on cryptocurrencies like bitcoin.
The UK government is the latest to make plans to regulate the digital currency.
Under the proposals, anonymity will end as traders will be made to reveal their identities. Bitcoin exchanges, the online platforms where the currency is traded, will be required to act on suspicious transactions taking place.
It is thought this will prevent the currency being used for illegal activities such as drug dealing, money laundering, and tax evasion.
Other European governments will be enforcing similar bitcoin regulation plans. They are expected to come into effect next year.
The price of bitcoin hit over $11,500 this weekend before falling to $10,554 following the news of the crackdowns.
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Money laundering is the biggest concern with bitcoin
The London Metropolitan Police have warned that drug dealers are using cryptocurrency ATMs in cities like London to bank drug money without getting caught.
A cryptocurrency specialist within the Serious and Organised Crime Command, detective inspector Tim Court, said:
If you’re a local drug dealer [crypto ATMs] are a great opportunity to quickly dispose of cash.
It’s not just drug dealers that are taking advantage of cryptocurrencies.
The Met Police also warned that brothels are using currency exchanges to store profits and organised gangs use digital currencies to buy guns on the dark web.
Last week, South Korea’s prime minister, Lee Nak-yeon, warned of how bitcoin was being used for criminal purposes. In a cabinet meeting, he urged the Ministry of Justice to look into the issues, saying:
These are cases in which young Koreans, including students, are jumping into make quick money and virtual currencies are used in illegal activities like drug dealing or multi-level marketing frauds.
Bitcoin is quick money: the first bitcoin billionaires
For some, cryptocurrencies are paying off. The Winklevoss twins, made famous by suing Mark Zuckerberg over who invented Facebook, have become the world’s first bitcoin billionaires.
The brothers owned over $11m worth of bitcoin back in 2013. Thanks to the major gains the currency has made this year that investment is now worth over $1bn.
Earlier this year, the Winklevoss twins tried to make bitcoin go legitimate.
They wanted to create an exchange-traded fund (ETF), a legitimate platform for traders and investors to buy, sell and store bitcoins. Unfortunately, the US Securities and Exchange Commission (SEC) rejected the idea of a bitcoin ETF in March.
However, crypto investor Mike Novogartz believes it’s not long until bitcoin will become part of mainstream investment options.
The former fund manager, who is now chief executive of Galaxy Investment Partners, says a big financial firm will be offering cryptocurrencies soon, which will propel bitcoin forward.