Browder is well-positioned to comment on government sanctions: A longtime foe of the regime of Russian President Vladimir Putin , he was instrumental in the passage of the Magnitsky Act, which imposed punitive sanctions against Russia after Hermitage Capital's lawyer, Sergei Magnitsky, died in police custody in Russia.

"Bitcoin and other cryptocurrencies are a way for bad dictators or criminals to bypass sanctions," Browder told CNBC's " Squawk Box " from the World Economic Forum in Davos, Switzerland.

Hermitage Capital CEO Bill Browder said bitcoin's usefulness for criminal activity will be the death of it and other cryptocurrencies.

Cryptocurrencies, which allow users to interact securely and semi-anonymously, offer a potentially more attractive money-transferring alternative to criminals. And since bitcoin is not tied to any specific nation or agency, there are fewer legal barriers to circumvent.

"From the perspective of politicians around the world — they're not going to allow that to happen," Browder said. "They will eventually regulate all cryptocurrencies."

"In the same way as you can't take more than $10,000 out of a U.S. bank without reporting it to the government, they're not going to allow people to take $1 million worth of bitcoin and move it from Russia to Switzerland," he said.

Once that happens, Browder said, bitcoin and other cryptocurrencies will lose the quality that made them so alluring to throngs of investors in 2017: A "libertarian freedom."