Banking giant JPMorgan has some reservations regarding El Salvador’s recent decision to make Bitcoin legal tender.
In a report revealed by Bloomberg, analysts from the bank say they believe that BTC being used as legal tender will put strains both on Bitcoin and El Salvador itself.
According to JPMorgan’s analysis, there is too much Bitcoin locked up in illiquid entities for it to function as a proper currency. They say that more than 90% of Bitcoin stays in the same hands for more than a year – with a “significant and rising fraction held by wallets with light turnover.”
“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.”
The illiquidity of Bitcoin that the bank alleges could act as, in their words, “potentially a significant limitation on its potential as a medium of exchange.”
The bank also mentions that constant demand for Bitcoin/US dollar conversions on the government platform could overwhelm dollar liquidity, leading to risks in the balance of payments and fiscal stability.
According to the report, JPMorgan also points to a recent survey first reported by Reuters that suggests most El Salvadorans are still skeptical of their country’s embrace of Bitcoin. The survey, done by Disruptiva, an affiliate of Francisco Gavidia University, concluded that out of 1,233 participants, 54% of respondents view Bitcoin adoption as “not at all correct”.
JPMorgan’s latest critique of El Salvador’s embrace of Bitcoin isn’t their first. In June, they said in a report first shared by Documenting Bitcoin on Twitter that they couldn’t see any coherent benefit behind the country’s decision and lamented the possibility of other countries doing the same.
“It is difficult to see any tangible economic benefits associated with adopting Bitcoin as a second form of legal tender, and it may imperil negotiations with the IMF.
Those moves may be complicated if this is the beginning of a broader trend among similarly situated, smaller nations.”
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Featured Image: Shutterstock/Galyna Andrushko
