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  • Business - Economy
  • Updated: July 12, 2021

Problems El Salvador Might Face With Bitcoin Law — JP Morgan

Problems El Salvador Might Face With Bitcoin Law — JP Morg

Top investment bank JP Morgan has highlighted some problems El Salvador will encounter after adopting bitcoin as its legal tender.

The American financial institution noted that the Bitcoin law would undoubtedly pose a challenge for Bitcoin as an entity and the Central American country.

JP Morgan in an analysis reported by Bloomberg, pointed that Bitcoin’s daily trading volume hits anywhere between $40 to $50 billion. However, the amount has been internalized by crypto exchange firms through which the coin moves around. They also noted that a large part of Bitcoin remains liquid as over 90 percent does not change hand in a year. This poses a problem of scarcity for the country that just made the digital asset a legal tender.

The bank points to daily payment activity in the country which would represent around 4% of recent on-chain transaction volume and over 1% of the total value of tokens that have transferred between wallets in 12 months.

This represents “potentially a significant limitation on its potential as a medium of exchange,” JPMorgan said.

Other problems

Other key concerns raised by the banking giant are growing skepticism, and resistance Salvadorians have to use Bitcoin as a means of exchange. Several reports have shown that many residents of the country are actually not ready for the cryptocurrency.

JP Morgan also noted that the high volatility of crypto would be a major challenge for the country’s monetary-financial system and the U.S dollar.

Lastly, the American bank notes that an imbalance in 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.

Crisis Follows El Salvador's Bitcoin Decision

Aside from concerns JP Morgan raised recently over the Bitcoin law passed by El Salvador, there has been a number of crisis that has rocked the nation after the country adopted Bitcoin as a currency.

One of it is from the International Monetary Fund, IMF. The IMF raised concerns over the move while the World Bank has denied any technical assistance in implementing Bitcoin.

Similarly, there has been furor by political opposition in the country over the move, which made President Nayib Bukele appear in a national broadcast to quell tension raised by political opponents.

Also, the recent Bitcoin adoption comes in the wake of an economic downturn faced by the Central American country.

As of report time, bitcoin was changing hands around $34,200, up 1.38% in the last 24 hours acording to data from Coindesk.

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