Bitcoin, which has surged roughly 300 percent in 2017, is certainly a "disruptive" technology but won't see widespread use, economist Mohamed El-Erian said Wednesday.

"The current pricing assume massive adoption, and I don't think governments will allow the amount of adoption that's currently priced in," Allianz's chief economic advisor said on CNBC's "Squawk Box."

Asked what would be a reasonable price for bitcoin, El-Erian said: "I would say at least half of what it is, a third of what it is."

El-Erian believes the cryptocurrency will exist as a peer-to-peer means of payment. "It exists in that world," he said, "but the current prices assume massive adoption, which is not going to happen."

Bitcoin fell below $4,000 on Wednesday on the threat of a regulatory crackdown in China and negative comments from major business leaders.

On Tuesday, at the CNBC-Institutional Investor Delivering Alpha conference, JPMorgan chief Jamie Dimon called the digital currency a fraud and governments will step in. "Wait until someone gets hurt. Wait until it's used for illicit purposes, which it's somewhat used for illicit purposes. They close it down. That's my point," he said.

At the same time, Dimon's own bank has reportedly started a trial project using blockchain, the technology behind bitcoin, to try to cut trading costs.

At the conference, Social Capital founder and CEO Chamath Palihapitiya defended the currency, saying countries can control how bitcoin is traded but not the way it's used.

"It's a fundamentally distributive system that exists peer to peer," the venture capitalist and ex-Facebook executive said. "To the extent that you can eliminate the will and actions of every person in the world, you can eliminate it. But in the absence of that, the genie [is] out of the bottle whether we like it or not."

He added he's been "massively long" bitcoin for years.

Also see: North Korea appears to be trying to get around sanctions by using hackers to steal bitcoin.