The inquiry comes as interest and investment in digital currencies continues to rise, but governments and regulators have struggled to get to grips with how to regulate them.
The committee said the review will cover the role of such currencies in the UK and assess the opportunities and risks digital currencies may bring to consumers, businesses and the government.
Nicky Morgan MP, chair of the Treasury Committee, said: “People are becoming increasingly aware of cryptocurrencies such as bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors.”
The committee’s decision to launch the inquiry “signals yet another step towards the what-seems-like inevitable regulation of digital currencies”, said Lorraine Johnston, regulation counsel at law firm Ashurst.
“Yet again, the conflicting interests of supporting innovation vs consumer protection are being put under scrutiny, this time by the Treasury. But surely this is a cryptoconundrum that no country has yet solved adequately? I wouldn’t, however, bet against some form of quasi-regulation of digital currencies coming out of this.”
The inquiry will also examine the potential impact of distributed ledger technology – such as blockchain – on financial institutions, including the central bank, and financial infrastructure.
The committee will scrutinise the regulatory response to digital currencies from the government, the Financial Conduct Authority, and the Bank of England, and how regulation could be balanced to provide adequate protection for consumers and businesses without stifling innovation.
Morgan said: “The Treasury Committee will look at the potential risks that digital currencies could generate for consumers, businesses, and governments, including those relating to volatility, money laundering, and cyber-crime.
“We will also examine the potential benefits of cryptocurrencies and the technology underpinning them, how they can create innovative opportunities, and to what extent they could disrupt the economy and replace traditional means of payment.
“The distributed ledger technology that supports digital currencies is said to have significant transformative potential, not least within the financial services sector.”
She added: “Striking the right balance between regulating digital currencies to provide adequate protection for consumers and businesses, whilst not stifling innovation, is crucial. As part of the inquiry, we will explore how this can be achieved.”
Alison McGovern MP, member of the Treasury Committee, said: “This inquiry comes at the right time, as regulators and governments wrestle with recent events in cryptocurrency markets. New technology offers the economy potential gains, but as recently demonstrated, it may also bring substantial risks.
“It is time that Whitehall and Westminster understood cryptocurrency better, and thought more clearly about the policy environment for blockchain technology.”