Legg Mason's Bill Miller may have lost 20 percent of his investment in bitcoin, but he's still bullish on its potential. The money manager told CNBC on Thursday he bought into the cryptocurrency after its biggest exchange, Mt.Gox, collapsed earlier this year.

Miller, chairman and chief investment officer at Legg Mason Capital Management, said bitcoin makes sense when investors look at its risks versus rewards. The payoffs would be huge if the digital currency can obtain a small fraction of gold's market share, he said.

Bitcoin prices exploded last year just past $1,100 only to hit several potholes in recent weeks. Bitcoins traded at $410 on Thursday morning, according to exchange bitstamp.net.

"You can't go buy anything with gold today in the United States," Miller said on "Squawk Box." "If it becomes only 10 percent as popular as gold, then it's an $800 billion market value. You can lose 100 percent of your money, or you can make 120 times your money. I think the risk reward is OK."

Miller commented on billionaire Warren Buffett's description of bitcoin as a "mirage" last month on "Squawk Box." Miller said Buffett was right about bitcoin's potential as a means of money transfers or payments. Beside that, he said, Buffett had a "logical flaw in his thinking."

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Comparing bitcoin to checks or money orders doesn't take into account the hard limit of 21 million bitcoins that its inventors have placed on its global supply, Miller added.

"If there were 21 million checks in the world and that's all there were, checks would be very very valuable," Miller said.