Bitcoin is essentially a "digital game" and is "worthless," "Shark Tank" investor Kevin O'Leary told CNBC on Tuesday.

The cryptocurrency extended its rally on Tuesday, rising above the $8,000 mark earlier in the day before giving up some of its gains.

"It is a useless currency," O'Leary, chairman of O'Shares ETFs, said on "Squawk Box."

"To me, it's garbage, because you can't get in and out of it in large amounts."

That's because the receiver of the cryptocurrency wants some guarantee of its value, he explained.

He ran into this when he tried to use bitcoin to buy Swiss real estate and was unsuccessful.

"Let's say you want to buy a piece of real estate for $10 million in Switzerland," said O'Leary, known as "Mr. Wonderful."

"They want a guarantee that the value comes back to the U.S. currency," he added. "You have to somehow hedge the risk of bitcoin. That means it's not a real currency. That means the receiver is not willing to take the risk of the volatility it has. It's worthless."

Bitcoin has been on a tear since the start of the year, with its value increasing more than 120%. On Tuesday morning, the cryptocurrency topped $8,325, according to data posted on the website CoinDesk.

The rally, however, doesn't come close to bitcoin's run in late 2017, when it hit all-time highs of around $20,000.

O'Leary isn't a believer in any cryptocurrency. He said he invested in the space as part of a challenge when he taught a class at Harvard University 18 months ago.

"I bought all the crypto crap. I put $100 in. It's now worth $30. That's a 70% loss," he said.

"People should understand today the hot digital is bitcoin," O'Leary added. "Tomorrow it could be whatever."

— CNBC's David Reid contributed to this report.

Disclosure: CNBC owns the exclusive off-network cable rights to ABC's "Shark Tank."