Janet Yellen says 'misuse' of cryptocurrencies like bitcoin is a growing problem, as regulators increase scrutiny after surge in interest

• Janet Yellen had more tough talk on cryptocurrencies like bitcoin, flagging their 'misuse.'
• The Treasury secretary said digital coins have been used to fund terrorism and launder money.
• The bitcoin price has surged to record highs after Tesla said it had bought $1.5 billion.

US Treasury Secretary Janet Yellen has called the "misuse" of cryptocurrencies such as bitcoin "a growing problem", in a sign that policymakers are increasing their scrutiny of digital assets.

Yet the Treasury Secretary - who took up her post in January - also said she saw "the promise" of cryptocurrencies, in opening remarks at the Treasury's innovation policy roundtable released on Wednesday evening.

Interest in cryptocurrencies has surged again over the last few days, after Elon Musk's electric-car company Tesla revealed it had bought $1.5 billion of bitcoin and intended to accept it as payment. The bitcoin price jumped to a record high of above $48,360 on Thursday after BNY Mellon and Mastercard took steps towards letting customers use cryptocurrencies more easily. It was up around 9% to $48,030 just before 11am ET.

But the stampede into cryptocurrencies has caught the attention of regulators and policymakers.

Yellen told the Treasury's financial sector innovation policy roundtable "the misuse of cryptocurrencies and virtual assets is a growing problem."

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She added: "I see the promise of these new technologies, but I also see the reality: cryptocurrencies have been used to launder the profits of online drug traffickers; they've been a tool to finance terrorism." Yellen did not elaborate on the "promise" that the technologies hold in the remarks released by the Treasury department.

Her words echoed comments she made in her hearing for the role of Treasury secretary in January, when she said: "I think we really need to examine ways in which we can curtail [cryptocurrencies'] use and make sure that money laundering doesn't occur through those channels."

Advocates of bitcoin and other cryptocurrencies - which are not regulated by a central authority - say that the rapid growth in the market means illicit transactions play a smaller and smaller role.

They also argue that criticism from the US government is hypocritical, because big banks and the dollar play a much bigger role in funding illegal activity.

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Soaring levels of interest in bitcoin led the UK regulator to warn potential buyers in January that they could "lose all their money", thanks to the wild swings in the value of the token.

The UK watchdog now requires crypto companies to register with it as part of its anti-money laundering regulations. Neil Wilson, chief market analyst at trading platform Markets.com, said the adoption of cryptocurrencies by big institutional investors like BNY Mellon would likely bring "more regulatory oversight."

"Whilst it was fine to let bitcoin be when it was used for money laundering and drug running, it's another story when the likes of BNY are offering custodial services," he said.