JPMorgan: The adoption of BTC by El Salvador can place a significant burden on the network
2 min read
US megabank JPMorgan continues to criticize El Salvador’s statement about accepting BTC as legal tender and warns of possible risks for both the country and the cryptocurrency itself.
The JPMorgan expert group, led by economist Steve Palacio, issued a report suggesting that Salvador, which had accepted the BTC as legal tender, could burden the BTC network.
Possible problems
Experts said BTC are highly illiquid, most BTC trading volumes are internalized by major exchanges, with more than 90% of BTC not changing owners in more than a year.
The use of Bitcoin as legal tender in a country such as El Salvador will potentially lead to a “significant reduction” in the ability of the cryptocurrency to serve as a medium of exchange, JPMorgan experts noted, pointing to the illiquidity and commercial nature of the cryptocurrency.
“Daily payment activity in El Salvador would represent 4% of the recent volume of transactions in the chain and more than 1% of the total value of tokens transferred between wallets last year.”
Impact on the monetary system
Experts from JPMorgan also noted other challenges associated with the acceptance of BTC by El Salvador as legal tender, including the possible impact on the monetary system along with official dollarization. The constant imbalance in demand for BTC and US dollar conversions could “cannibalize the dollar’s liquidity” and possibly introduce fiscal and balance of payments risk, the report added.
Conclusion
As previously announced, the El Salvador Parliament passed a bill in early June recognizing BTC as legal tender, with President Nayib Bukele saying that the adoption of the BTC would be mandatory for all businesses. A number of global financial regulators and institutions have expressed skepticism in this move, with the International Monetary Fund warning of possible legal and financial consequences. JPMorgan analysts warned that the adoption of BTC in El Salvador could jeopardize IMF action.
