The lawyer for Ross Ulbricht, who is facing charges over alleged money laundering and sale of illegal drugs through the bitcoin-based online black market Silk Road, claims his client is innocent because the digital currency cannot be treated as money.
Joshua Dratel filed a motion in New York demanding that all charges against his client should be dropped.
Ulbricht was arrested in San Francisco in October after a federal investigation accused him of being the operator of Silk Road under the pseudonym of 'Dread Pirate Roberts.' Ulbricht maintains he has no involvement with Silk Road.
Ulbricht is facing criminal charges, including narcotics conspiracy, computer hacking and money laundering.
Thirty thousand bitcoins were seized by prosecutors.
In his motion, Dratel argues that his client could not have used bitcoins for money laundering because the digital currency does not fit the legal definition of money.
"Count Four, which charges Mr Ulbricht with participating in a money laundering conspiracy must be dismissed because the allegation lacks an essential element: that the 'financial transactions' alleged involved 'monetary instruments,'" the motion said.
"Bitcoins, the exclusive means of payment on Silk Road, do not qualify as monetary instruments and therefore cannot serve as the basis for a money laundering violation."
The US Internal Revenue Service has decided to treat bitcoins as property rather than money.
Dratel also argued that Ulbricht did not participate in drugs trafficking, computer fraud, or money laundering but had been accused of hosting an online platform, where users carried out illegal activities.
He cited Section 230 of the Communications Decency Act, which protects site owners from liability against users' actions.
"Analogously, no landlord has been prosecuted under the federal controlled substances statutes for renting an apartment to a known drug seller," Dratel wrote.
"Nor has any internet service provider been prosecuted because users of the service engage in illegal transactions using the provider's internet service."
If Dratel's motion to drop charges is denied, the case is scheduled to go to trial in November.
Ulbricht is also facing charges in Maryland that he arranged the contract killing of six people.