The dispute about the implications of El Salvador President Nayib Bukele’s effective push to make Bitcoin (BTC) legal tender continues as the United States financial investment bank and monetary services holding business JPMorgan Chase & Co. (JPM) cautions about the prospective dangers included in the nation’s crypto adoption.
According to Bloomberg, JPM’s professionals launched a report recently, worrying numerous obstacles related to the application of the brand-new Bitcoin legislation, generally in connection to the cryptocurrency’s high illiquidity – high volatility makeup.
Pressure on the Bitcoin network
According to the United States bank’s specialist report, El Salvador embracing Bitcoin as legal tender might result in considerable pressure on the Bitcoin network.
“Bitcoin trading volumes commonly exceed $40 billion to $50 billion per day, but most of that is internalized by major exchanges,” JPM’s professionals informed Bloomberg, including that the greatest quantity of Bitcoin is secured in illiquid entities with over 90% not altering hands in more than a year.
Alongside the “significant and rising fraction held by wallets with light turnover,” the anticipated day-to-day payment activity in El Salvador would represent approximately 4% of current on-chain deal volume and more than 1% of the overall worth moved in between wallets in the previous year,” according to the JPM’s report.
Due to such illiquidity and trading nature of Bitcoin, it’s adoption in El Salvador might possibly put a “significant limitation” on the cryptocurrency’s ability to work as a medium of exchange, specified the report.
Pressure on the nation
The JPM report likewise explained issues concerning the effect of the cryptocurrency’s high volatility in a bi-monetary system together with main dollarization, including that a continuous imbalance of need for Bitcoin – United States dollar conversions on the federal government platform may “cannibalize onshore dollar liquidity” and possibly present financial and balance of payments threat.
JPM specialist report likewise assessed the outcomes of current studies, which exposed the nation’s suspicion of Bitcoin as a medium of exchange, as they included popular opinion issues to their list of adoption obstacles.
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