El Salvador’s declaration of Bitcoin as legal tender could pose challenges for both the country and the cryptocurrency, according to a team from JPMorgan Chase & Co.

Bitcoin trading volumes typically exceed $ 40 to 50 billion a day, but most of it is internalized by major exchanges, a group from JPMorgan including Steve Palacio, Joshua Younger and Veronica Mejia Bustamante said in a report Thursday. A large part of Bitcoin is locked in illiquid units, with more than 90% not changing hands for more than a year – with a “significant and increasing proportion held by wallets with light”. sales“They added.

“Daily payment activity in El Salvador would represent ~ 4% of the most recent transaction volume in the chain and more than 1% of the total value of tokens transferred between wallets in the past year,” the report said with the illiquidity type of volume ” possibly a significant limitation of its potential as a medium of exchange ”.

The initiative of the President of El Salvador, Nayib Bukele, to make Bitcoin legal tender in the country has sparked a number of debates about whether it is beneficial and what the impact it could be. Bukele, 39, said Bitcoin will help counter the country’s low bank penetration rate and reduce the cost of money transfers. But the International Monetary Fund – which is currently discussing its loan program with El Salvador – is among those who have questioned this rationale.

Read more: The Bitcoin Bomb Of El Salvador – What Does It Mean ?: QuickTake

Even many proponents of Bitcoin say that while it is an argument in favor of good store of value, its usefulness as a payment mechanism is limited.

“Bitcoin is the worst payment system ever invented. It’s awful, ”said William Quigley, the co-founder of Stablecoin Tether and a pioneer in several aspects of the cryptocurrency space, in a recent video interview. “Almost every token is better than Bitcoin as a payment system.”

Other challenges JPMorgan sees for El Salvador’s adoption of Bitcoin as legal tender include:

  • Recent surveys indicate widespread skepticism and reluctance to use Bitcoin as a medium of exchange
  • In addition to official dollarization, the high volatility of Bitcoin is a particularly big challenge in a bimonetary system
  • A persistent imbalance in demand for bitcoin to US dollar conversions on the government platform could “cannibalize onshore dollar liquidity” and eventually introduce budget and balance of payments risk

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