Last month, El Salvador passed the “Bitcoin Law” with 62 affirmative votes from 84 members of Parliament, and set a precedent in the world for a sovereign country to use Bitcoin as legal tender.
Recently, the bill has continued to ferment, attracting heated debates from all sides. The American investment banking giant JP Morgan Chase is on the critical side and warned that El Salvador will have many risks in using Bitcoin as a legal tender.
Recently, a JPMorgan Chase expert group led by economist Steven Palacio released a report that the implementation of BTC as a legal currency in El Salvador may bring multiple challenges to the country and the Bitcoin network.
The report pointed out that the daily trading volume of Bitcoin is about 40-50 billion US dollars, but most of them are digested inside the leading exchanges. A large part of BTC is locked in entities with poor liquidity, more than 90% have not changed hands in more than a year, and a considerable part is held by wallets with smaller transactions. In other words, the liquidity of Bitcoin may only be 5%-10%.
In addition, daily payment activities in El Salvador will account for about 4% of the recent on-chain transaction volume and more than 1% of the total value of BTC transferred between wallets in the past year. Insufficient liquidity combined with such trading volume may severely limit the potential of BTC as a trading medium.
Experts from JP Morgan Chase also noted that the high volatility of BTC may pose a huge challenge to El Salvador’s dual currency system and the official US dollar mechanism. The report also mentioned that the imbalance in demand for BTC/USD exchange on government platforms may “cannibalize onshore dollar liquidity” and trigger fiscal and balance of payments risks.
When the “Bitcoin Act” was first passed, JP Morgan Chase poured cold water on El Salvador. He pointed out that the adoption of Bitcoin is “difficult” to see any “tangible economic benefits” and may also jeopardize negotiations with the International Monetary Fund. To make matters worse, this event may affect the way large economies treat Bitcoin. If more small countries like El Salvador use Bitcoin as legal tender, then regulatory measures may become more complicated.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/jpmorgan-chase-insufficient-liquidity-or-restrict-bitcoin-to-become-salvadoran-legal-tender/
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