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El Salvador’s announcement of bitcoin as legal tender could create challenges for both the country and the cryptocurrency, according to a team of analysts at investment bank JPMorgan, who questioned the ability to implement these plans as bitcoin trading volumes typically exceed $ 40 billion $ 50 billion per day but most of the exchanges are absorbed by the major exchanges.
They added that a large portion of Bitcoin is locked in illiquid entities, with over 90% of their holdings not circulating for more than a year, because “a large and growing portion of wallets has low numbers of business, ”according to Bloomberg, who reviewed Al Arabiya.net.
“Daily payment activity in El Salvador will account for around 4% of the volume of recent transactions on the Bitcoin blockchain, and more than 1% of the total value of cryptocurrency transferred between wallets last year,” the report says. . the nature of the volume, potentially constitute an important limitation of its potential as a medium of exchange.
Salvadoran President Najib Boukela’s initiative to make Bitcoin an official currency in the country has sparked debate over its usefulness and possible repercussions.
Bukele argued that Bitcoin would help increase financial inclusion, increase El Salvador’s low bank penetration rate, and lower the cost of sending remittances. But the International Monetary Fund – which is currently in talks with El Salvador over its credit program – is among those who have questioned this rationale.
Even many supporters of Bitcoin claim that while there is an argument that it is a good store of value, its usefulness as a payment mechanism is limited.
“Bitcoin is the worst payment system ever invented,” said William Quigley, co-founder of Stablecoin Tethe. “Almost any token is better than Bitcoin as a payment system,” he added.
Other challenges that JPMorgan sees regarding El Salvador’s adoption of bitcoin as legal tender include what recent surveys indicate about widespread skepticism and reluctance to use bitcoin as a medium of exchange.
The high volatility of Bitcoin is also a particularly important challenge in a monetary system with official dollarization.
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