Digital currency bitcoin has seen a spike in interest coinciding with a huge rally, but it has divided opinion greatly with analysts differing on whether it's an advancement in the monetary system or just a large Ponzi scheme that should be avoided.
Davide Serra, founder and CEO of Algebris Investments, is firmly in the latter group, likening the recent surge in bitcoins to tulip mania in the 17th century, when the market for plant bulbs reached extraordinarily high levels in the Netherlands before suddenly collapsing.
"If you're a narco-dollar trafficker you're going to love it, because basically it's a way to smuggle money through," Serra told CNBC Friday.
Bitcoin is a virtual currency allowing users to exchange online credits for goods and services. While there is no central bank that issues them, bitcoins can be created online by using a computer to complete difficult tasks, a process known as mining.
"Someone who tries to buy it comes on TV, pushes the story and hopefully tomorrow you can sell it for a higher price. That's not a currency—that's a ponzi scheme," Serra said.
According to Serra, the system relies on selling bitcoins at a later date to "a greater fool."
(Read More: What Is Bitcoin?)
"No central bank, no pension fund, no institutional investor will ever put a dollar into this thing," he said.
On the other hand, Serra said, gold has been successful over the years as it stores value. The volatility of bitcoins is far removed from conventional currencies that trade in tight bands, he added.
Bitcoin prices have surged nearly 360 percent over the past month to an all-time high of $147 on Wednesday because of growing uncertainty over fiat currencies and the turmoil in Cyprus.
"As a payment platform it has a lot of potential given that global banks in particular charge potentially a lot of fees to transfer money abroad," Alistair Cotton, senior analyst at Currencies Direct, told CNBC Friday.
(Read More: Bitcoin Hacked: Price Stumbles After Buying Frenzy)
Cotton used the analogy of Napster to explain what it could do for currencies. Napster, the now defunct peer-to-peer file-sharing service, changed the way consumers buy music and has altered the music industry with digital downloads.
"Bitcoin is the development of digital currencies, so in an evolutionary sense digital currencies do have a role to play going forward in my opinion," Cotton said. "[But] bitcoin may not be the answer, it has got a lot of flaws."
—By CNBC.com's Matt Clinch