American megabank JPMorgan has continued criticizing El Salvador’s declaration of Bitcoin [BTC] as a legal tender, explaining the associated potential risks for both the country and the cryptocurrency.
A JPMorgan expert group led by economist Steve Palacio outlined a report suggesting that El Salvador adopting BTC as a legal tender might put a strain on the Bitcoin network, Bloomberg reported earlier on Sunday.
The experts added that Bitcoin is very illiquid, noting that the majority of Bitcoin trading volumes are internalized by leading exchanges, with over 90% of Bitcoin not changing hands for more than a year.
The use of Bitcoin as a legal tender within a country like El Salvador will potentially put a “significant limitation” on Bitcoin’s capability to function as a medium of exchange, JPMorgan experts added, pointing to the cryptocurrency’s illiquidity and trading nature.
“Daily payment activity in El Salvador would represent 4% of recent on-chain transaction volume and over 1% of the entire value of tokens which are transferred between wallets within the past year,” they revealed.
The JPMorgan experts also outlined that other challenges related to El Salvador’s adoption of Bitcoin as a legal tender, along with the potential impact on the medium of exchange alongside official dollarization. Endless imbalance of demand for conversions of Bitcoin and therefore the USD might “cannibalize onshore dollar liquidity” and eventually introduce fiscal and balance of payments risk, the report explains.