Speaking at the Future Investment Initiative in Riyadh, Saudi Arabia, Thiel compared the cryptocurrency bitcoin to gold.
"I'm skeptical of most of them (cryptocurrencies), I do think people are a little bit … underestimating bitcoin especially because ... it's like a reserve form of money, it's like gold, and it's just a store of value. You don't need to use it to make payments," Thiel said.
"If bitcoin ends up being the cyber equivalent of gold it has a great potential left."
There has been rising interest in bitcoin this year. The cryptocurrency recently hit a new record high above $6,100 and has rallied over 500 percent this year.
Thiel said that bitcoin is based on the "security of the math" which means it can't be hacked and it's secure. The PayPal founder and venture capitalist compared some of bitcoin's features to gold.
"Bitcoin is mineable like gold, it's hard to mine, it's actually harder to mine than gold. And so in that sense it's more constrained," Thiel said.
The cryptocurrency has a limited supply and only 21 million bitcoin will be mined.
Major figures in the business world have weighed into the debate over the sustainability of cryptocurrencies. JPMorgan Chase CEO Jamie Dimon called bitcoin a "fraud" and said people who buy it are "stupid". Saudi billionaire investor Prince Alwaleed bin Talal said Monday that bitcoin will "implode" one day.
On the other hand, former hedge fund manager Michael Novogratz said bitcoin would head to $10,000, mirroring the bullishness of some CNBC readers. Forty-nine percent of the 23,118 people who voted in an unscientific survey last week about the direction of the bitcoin price, said it was heading above $10,000.