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Daily payment activity in El Salvador would represent more than 1% of the total value of BTC that has been transferred among wallets in the past year, JPMorgan experts say.
American megabank JPMorgan has continued criticizing El Salvadorâs declaration of Bitcoin (BTC) as legal tender, warning of the potential risks for both the country and the cryptocurrency.
A JPMorgan expert group led by economist Steven Palacio released a report suggesting that El Salvador adopting BTC as legal tender could put a strain on the Bitcoin network, Bloomberg reported Sunday.
The experts said that Bitcoin is highly illiquid, noting that most Bitcoin trading volumes are internalized by major exchanges, with more than 90% of Bitcoin not changing hands in more than a year.
The use of Bitcoin as legal tender in a country like El Salvador will potentially put a âsignificant limitationâ on Bitcoinâs capability to serve as a medium of exchange, JPMorgan experts noted, pointing to the cryptocurrencyâs illiquidity and trading nature.
âDaily payment activity in El Salvador would represent 4% of recent on-chain transaction volume and more than 1% of the total value of tokens which have been transferred between wallets in the past year,â they said.
The JPMorgan experts also noted other challenges associated with El Salvadorâs adoption of Bitcoin as legal tender, including the potential impact on the monetary system alongside official dollarization. A continuous imbalance of demand for conversions of Bitcoin and the United States dollar could âcannibalize onshore dollar liquidityâ and eventually introduce fiscal and balance of payments risk, the report added.
Related: UN commission serves new warning against BTC adoption in El Salvador
As previously reported, El Salvadorâs parliament passed a bill to recognize Bitcoin as legal tender in early June, with President Nayib Bukele stating that accepting Bitcoin would be mandatory for all businesses. A number of global financial regulators and institutions expressed skepticism over the move, with the International Monetary Fund warning of potential legal and financial consequences. JPMorgan analysts suggested that El Salvadorâs Bitcoin adoption could jeopardize IMF negotiations.
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