That may be what the lawyers argued, but AFAIK it did not stick.    The concept of money laundering is more general; the money can be  (and often is) converted to non-money merchandise, such as boats, diamonds, real estate, etc.

http://money.howstuffworks.com/money-laundering.htm

According to what I understood of the charges, "dirty" money from Silk Road customers was turned into bitcoins by Charlie and his partner, sent to the SilkRoad merchants, and the bitcoins from SilkRoad's fees were to be converted to (or used as) money by Ross.  This way, they hoped, the source of Ross's wealth would appear to be legitimate (bitcoins, rather than drugs).

EDIT: typo "SilkRoad"