JPMorgan: El Salvadors’ Bitcoin Adoption Could Pose Challenge for the Country

Wall Street giant JPMorgan isn’t quite happy with El Salvador making Bitcoin (BTC) a legal tender in the country. The banking firm noted that passing the Bitcoin law could pose a challenge for Bitcoin as well as the cryptocurrency itself.

Analysts of JPMorgan noted that Bitcoin’s daily trading volume hits anywhere between $40 to $50 billion. However, most of this has been internalized by major exchanges. It further adds that a large port of BTC remains illiquid, with over 90% not changing hands in a year.

The banking giant said this illiquidity and the volume is “potentially a significant limitation on its potential as a medium of exchange”. It further added:

“Daily 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”.

Besides, the banking giant also points out some key challenges for El Salvador concerning its Bitcoin adoption. As reported by Bloomberg, this includes:

• The growing skepticism and resistance for using Bitcoin as a medium of exchange.
• Bitcoin’s high volatility will pose a major challenge for its bimonetary system along with the official use of U.S. Dollars.
• An imbalance in the demand for the Bitcoin/USD conversions can “cannibalize onshore dollar liquidity” says JPMorgan. Thus, this can eventually result in fiscal and balance of payment risks.

El Salvador’s Bitcoin Adoption

Last month, the Latin American country passed the Bitcoin law making it a legal tender alongside the U.S. Dollars. As a result, merchants and service providers will have to accept Bitcoin as a means of payment.

With President Nayib Bukele taking such a Bitcoin-friendly measure, there’s growing skepticism about its use. The IMF has raised ocnecenrs over this move while the World Bank has denied any technical assistance in implementing Bitcoin.

The recent Bitcoin adoption comes in the wake of the economic downturn faced by El Salvador. It will be interesting to see how the Latin American country justifies this move over a period of time.