European Union legislation to clamp down on bitcoin and other cryptocurrencies is expected withing coming weeks over concerns they are being used to launder money and evade tax.
HM Treasury intends to introduce regulation to force bitcon users and traders to reveal their identities and report any suspicious activity, according to reports on Monday.
Currently, bitcoin can be purchased anonymously by anyone who has set up an online 'wallet' to hold your digital currency and then set up a broker account using your real-world cash, prepaid card or even use a bitcoin ATM.
The Treasury now intends to begin regulating the virtual currency, the Guardian reported, to bring it in line with rules on anti-money laundering and counter-terrorism financial legislation.
Under a European Union plan, online platforms where bitcoins are traded will be required from 2018 to carry out due diligence on customers and report any suspicious activity.
Stephen Barclay, economic secretary to the Treasury, said in October that the government was "currently negotiating amendments to the fourth Anti-Money Laundering Directive that will bring virtual currency exchange platforms and custodian wallet providers into anti-money laundering and counterterrorist financing regulation, which will result in these firms' activities being overseen by national competent authorities for these areas."
He said the government "supports the intention" behind these amendments and expect negotiations to conclude at EU level in late 2017/early 2018.
Bitcoin hit a new all-time high of more than $11,800 overnight before making a steep drop took to around $10,600, according to Coindesk's index, as the currency's market capitalisation neared $200bn.
On Friday US exchanges CME Group Inc and CBOE Global Markets were given regulatory permission to list bitcoin futures contracts by the Commodity Futures Trading Commission.
Spurred on by the unveiling by CME of its plans in to launch futures on the digital currency before the year was out sent bitcoin barreling from the mid $6,000 quickly above $10,000 in November and up to $11,000 last week. This volatility goes both ways, with drops of $1,000 in a matter of minutes not unknown.
In other digital currency news, Venezuela President Nicolas Maduro over the weekend announced plans to launch an oil-backed cryptocurrency called the petro with the aim of bypassing US-led financial sanctions on the country.