• Concerns over bitcoin's use in crime are odd, Nic Carter, a crypto fund co-founder, said.
  • Data shows the dollar is far more often used for illegal purposes than bitcoin, he said.
  • Carter said SEC approval of a bitcoin ETF seems to be getting further away.
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Policymakers' concern over bitcoin's use in illicit payments is strange, since any form of monetary exchange can be used illegally, Nic Carter, a partner at crypto fund Castle Island Ventures, told Bloomberg this week.

"The concern about illicit activities is an odd one," he said. "Any monetary system is always going to be used for crime, as well as more salubrious purposes."

The recent bitcoin downturn was partly fueled by fears over its use in ransom payments to the hackers who shut down the Colonial Pipeline in the US this month, along with global changes in regulation.

"All of the data that we have seen, and this is kind of eminently traceable, because bitcoin is this relatively transparent system, indicates that in absolute and relative terms, the dollar is used for illicit purposes, far more than bitcoin," Carter said. "So the crime angle is a pretty curious one. I mean, we didn't ban dollars because Pablo Escobar had heaps of dollars in his basement."

Bitcoin was last trading 9% lower at $35,620 (R498,68) on Friday. It has lost about 50% in value over the past few weeks, but is still up 23% so far this year.

Read More: A 'dogecoin millionaire' explains why the recent drop does not shake his bullishness in the meme coin - and shares his advice for new buyers

Development in regulatory clarity has helped woo Wall Street investors, with some policymakers warming up to the idea of providing overdue investor protection. Carter expects the Securities and Exchange Commission to provide more direction for the largely unregulated digital assets markets, but thinks there is already a fair amount of clarity on bitcoin.

A lot of this regulatory concern over use of cryptocurrencies in criminal activities, as well as their volatility, could push back the launch of bitcoin-backed derivatives, such as exchange-traded funds, in the United States, he said.

"Bitcoin is quite well understood by FinCEN, by the IRS, by the Treasury," he said.

"The remainder of the crypto markets less so, but everyone in the crypto markets right now is kind of playing the waiting game, looking to see what the SEC has to say about the ETF, potentially. Although after the volatility of this year, that seems to be getting further and further away."

The SEC has begun an official review of two investment firms - Fidelity Investments and SkyBridge Capital - that applied to launch bitcoin ETFs in March, according to Cointelegraph. The regulator currently has six applications on the docket to review, and not one has been approved yet.

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