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The cryptocurrency community – especially the bitcoin folks out there are pretty much well-acquainted with the fact that the Central American country of El Salvador had passed into law the said digital currency as the state’s legal tender. The team from JPMorgan Chase & Co., however, sees it as a bad move as they believe that the country’s move could have serious consequences for both the realm of crypto and the nation itself.
The investment banking firm stated that bitcoin (BTC) as one of El Salvador’s currencies could be facing factors that could slow down the country’s economic growth. The team sees a possible limitation on BTC’s use as a medium of exchange.
On Thursday, the JPMorgan team consisting of Joshua Younger, Steve Palacio, and Veronica Mejia Bustamante rolled out a report about it stating that there’s a possibility that issues might emerge since much of the digital currency is connected in “illiquid entities.”
Additionally, 90 percent of it hasn’t changed hands in over a year alongside a significant and increasing fraction being held by wallets with light turnover. The said collective also pointed out that trading volumes of bitcoin usually exceed between $40 billion to $50 billion every day.
Terrible idea
The report further revealed that the “daily payment activity within El Salvador would only represent ~4 percent of recent on-chain transaction volume and more than one percent of the total value of tokens which have been transferred between wallets in the past year” adding that the illiquidity and nature of the volume “potentially a significant limitation on its potential as a medium of exchange.”
More challenges
Even notable proponents of bitcoin may well seem to be in unison with what JPMorgan has recently reported. William Quigley – one of the co-founders of the stablecoin Tether said that BTC’s the worst payment system ever devised as he described such idea as “terrible.” He also said during an interview that almost any token is far better than bitcoin in terms of being utilized as a payment system.
JPMorgan discovered other challenges with El Salvador’s move like a recent survey that shows that most Salvadorensare still skeptical about the idea of a digital currency being their legal tender alongside the U.S. dollar. They too are hesitant in using Bitcoin as a medium of exchange.
As for the said survey, it was conducted by a pollster known as Disruptiva which an affiliate with Francisco Gavidia University. Results revealed that around 54 percent of people deemed the country’s bitcoin adoption as “not all correct” while 24 percent of the respondents see it as “only a little correct.” The recent poll reached out to 1,233 people across El Salvador between July 1-4 as it features 2.8 percent alongside a margin of error of 2.8 percent.
The constant imbalance of demand for bitcoin-U.S. dollar conversions on the government platform could eventually “cannibalize onshore dollar liquidity” and would result in the introduction of fiscal and balance of payments risk.
Another factor they observed is Bitcoin’s volatility as this according to them would pose a huge hurdle to overcome in El Salvador’s bimonetary system paired with official dollarization.
With a background in journalism, Ritika Sharma has worked with many reputed media firms focusing on general news such as politics and crime. She joined The Coin Republic as a reporter for crypto, and found a great passion for cryptocurrency, Web3, NFTs and other digital assets. She spends a lot of time researching and delving deeper into these concepts around the clock, and is a strong advocate for women in STEM.
