The Saudi business mogul criticised the cryptocurrency’s lack of regulation and warned it was “Enron in the making” – a reference to the 2001 financial scandal in which investors lost billions of dollars.
His comments come as new research revealed a flood of new hedge funds investing exclusively in digital currencies have opened in the past year.
In an interview with CNBC, Prince Alwaleed said: “It just doesn’t make sense. This thing is not regulated, it’s not under control, it’s not under the supervision of any central bank.
“I just don’t believe in this bitcoin thing.
“I think it’s just going to implode one day. I think this is Enron in the making.”
American gas firm Enron went bankrupt in 2001 after the company racked up billions of dollars of debts which executives hid from shareholders.
But after a series of bad deals and failed projects, the energy corporation eventually went bust, taking at least $40billion (£30billion) of investor cash with it.
Prince Alwaleed added he was in agreement with JPMorgan Chase boss Jamie Dimon, who last month branded bitcoin a “fraud” which would “eventually be closed”.
The 62-year-old heads Kingdom Holding, a huge multinational conglomerate with investments in Apple, Twitter and banking giant Citigroup.
But figures released today by financial technology research group Autonomous NEXT show a rapid growth in the number of investment firms dealing exclusively in virtual cash.
Their data reveals that of 110 so-called crypto hedge funds registered across the globe, 84 were launched this year.
And between them they manage some $2.2billion (approximately £1.7billion) in digital assets.
But despite bitcoin outperforming all of the world’s traditional currencies for the past three years, banks, pension funds and investment firms are largely staying away.
Trevor Greetham, from Royal London Asset Management, told Reuters: “While cryptocurrencies are probably here to stay, they are difficult to analyse, wildly volatile and some may be prone to fraud.
“Diversification is a good thing but that doesn’t mean investing in everything just because it’s there.
“We favour assets with a long track record in producing returns or reducing risks.”
There are currently around 17 million bitcoins in circulation with total value – at today’s price of £4,439 per coin – of close to $100 billion (around £76 billion).
Ethereum, the second biggest cryptocurrency, is worth some $30billion.