Investors should start asking plenty of questions when it comes to bitcoin, according to Mohamed El-Erian, chief economic adviser for Allianz.

"The most important question is, what is being assumed at these levels?" he said in an interview with TheStreet. "What's being assumed at these levels is major adoption of bitcoin by many institutions, by many individuals. I think that's an overreaction. I don't think bitcoins will get adopted simply because central banks are going to be very uncomfortable."

That doesn't mean bitcoins will disappear. "They play a very important function, but it's not the function that's priced in right now," he said.

Bitcoin is up roughly 230% year-to-date, trading at $3,285.80, but has fallen some 22% over the past month.

On Thursday, China regulators took measures to shut down bitcoin exchanges.

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