Christy Goldsmith Romero, a commissioner at the U.S. Commodity Futures Trading Commission, said cryptocurrencies were being used to finance cybercrime whose victims include individuals, companies, hospitals and critical infrastructure.

"Fraud is a hallmark of digital asset markets, the human toll of which may be overlooked," Romero told a City Week conference in London, adding that it was imperative that the lack of visibility in cryptomarkets was addressed.

"It's essential for governments and particularly the industry to address that which makes crypto so attractive to illicit finance, and that is the allure of anonymity," she said.

Legally compliant crypto companies should not be using "mixers" or software tools that effectively anonymise users by pooling and scrambling cryptocurrencies from thousands of addresses.

"Congress is already considering new laws on addressing anonymity and digital identity," Romero said.

Compliant crypto companies must show they have internal controls to prevent money laundering and terrorist financing.

Last year, the U.S. imposed sanctions on virtual currency mixer Tornado Cash, alleging it helped hackers, including from North Korea, to launder proceeds from cyber crimes.

"It's possible for all crypto companies to distance themselves from mixers and anonymity enhancing technology while still providing customers financial privacy," Romero said.