Juan Zarate said as the use of blockchain technology expands and remains mostly unregulated, cryptocurrency could be used for illicit measures.
He warned regimes in North Korea and Iran are looking into cryptocurrencies amid a series of financial sanctions from the international community.
Mr Zarate said: “There are nefarious actors out there, including state actors like North Korea and Iran that are looking to the use of digital currencies and related technologies, at a minimum as a way of circumventing the current global order which limits their access to capital.
“But these capabilities and technologies could also be a way for them to try to undermine global financial commercial systems at some point.”
As Pyongyang and Tehran are isolated by financial sanctions, Mr Zarate warned the regimes could become reliant on digital currency.
He said: “Actors that are less invested in the global financial commercial system are likely to be more reliant on technologies or techniques that give them asymmetric capabilities to threaten that very system.”
Mr Zarate’s comments come as Venezuela’s new oil-backed cryptocurrency the Petro has been condemned by US Senators who believe the country has made the currency to avoid sanctions.
US Senators Marco Rubio and Robert Menendez have both denounced Venezuela’s planned cryptocurrency in an open letter addressed to the US Treasury Secretary Steven Mnuchin.
Mr Rubio and Mr Menendez wrote in their open letter: “We have serious doubts about whether Venezuela has the capacity to launch a cryptocurrency, but regardless, it is imperative that the US Treasury Department is equipped with tools and enforcement mechanisms to combat the use of cryptocurrency to evade U.S. sanctions in general, and in this case in particular.”
Russia has also used similar tactics. President Vladimir Putin has mandated regulation around cryptocurrencies, including registration requirements for miners and the application of securities laws to Initial Coin Offerings (ICO). He has also commissioned a national cryptocurrency cryptoruble.
Sergei Glazev, an economic adviser to the Russian leader, told a government meeting the cryptocurrency would serve as a “useful tool” to evade western economic sanctions.
Mr Glazev said: “This instrument suits us very well for sensitive activity on behalf of the state. We can settle accounts with our counterparties all over the world with no regard for sanctions.”