Three to four billion pounds of criminal money in Europe is being laundered through cryptocurrencies, according to Europol.
The agency's director Rob Wainwright told the BBC's Panorama that regulators and industry leaders need to work together to tackle the problem.
The warning comes after Bitcoin's value fell by half from record highs in December.
UK police have not commented to the programme.
Mr Wainwright said that Europol, the European Union Agency for Law Enforcement Cooperation, estimates that about 3-4% of the £100bn in illicit proceeds in Europe are laundered through cryptocurrencies.
"It's growing quite quickly and we're quite concerned," he said.
There many different types of cryptocurrencies but the best known is Bitcoin. They are intended to be a digital alternative to pounds, dollars or euros.
However, unlike traditional currencies, they are not printed by governments and traditional banks, nor controlled or regulated by them.