Home News El Salvador Bitcoin move will put pressure on network: JPMorgan

El Salvador Bitcoin move will put pressure on network: JPMorgan


According to JPMorgan, El Salvador’s decision to make Bitcoin legal tender could create problems for the Latin American country and leading cryptocurrency.

JPMorgan analysts saw a number of problems that can arise when using Bitcoin as means of payment in El Salvador. The bank’s report indicates that most of the Bitcoins are illiquid. And 90% of digital coins have not changed owners over the past year.

JPMorgan experts pointed out that the use of Bitcoin as a legal currency in a country like El Salvador could potentially significantly limit Bitcoin’s ability to serve as a medium of exchange. And, accordingly, could put pressure on the Bitcoin network.

Also, JPMorgan notes that after the emergence of the possibility of converting Bitcoin into the US currency, a violation of the balance of payments and fiscal stability may occur.

Thus, the report of the investment bank JPMorgan says that the financial system of El Salvador will face difficulties. Which is already functioning intermittently.

Rapid adoption of BTC could undermine the stability of El Salvador’s financial system

The influence of the cryptosphere in El Salvador is minimal. So, the rapid introduction of BTC and other digital currencies is not yet possible. Now this Latin American state accounts for less than 4% of transactions on the bitcoin network.

The total cost of cryptocurrency transactions carried out by the Salvadorans is about 1% of the total amount of funds moved across the blockchain. The stability of financial system of El Salvador could undermined by the periodic exacerbation of the volatility of Bitcoin.

In addition, recent polls have shown that Salvadorans themselves are skeptical about the prospects for BTC as a payment instrument. Many residents of the state declaring that they will definitely not use cryptocurrency when paying for goods and services.

Steve Hanke, professor of applied economics at Johns Hopkins University, also warned that the adoption of Bitcoin as a means of payment could lead to the collapse of the economy of El Salvador. According to the economist, the negative impact on the economy will provoke the withdrawal of all dollars from the country by converting them into Bitcoin.

That is, conversions on the government platform can “kill dollar liquidity”. Which will lead to risk in the balance of payments and financial stability of the country.

Skepticism about Bitcoin being recognized as an official means of payment

El Salvador is the first country in the world to legally recognize Bitcoin as an official means of payment. The corresponding decision made the country’s parliament on June 9.

According to the law, prices in El Salvador can be set in Bitcoins. And you can also pay taxes in cryptocurrency. The exchange of Bitcoins for American dollars, which is also the currency of El Salvador, will not be subject to capital gains tax. While Bitcoins exchanged at market rates.

While the original goal of El Salvador President Nayib Bukele to declare Bitcoin legal tender in the country was to reduce the cost of sending remittances back to the country; the move has sparked controversy over the advantages and disadvantages of the new legislation.

A number of global financial regulators and institutions have expressed skepticism about this step.

The International Monetary Fund saw risks in the legalization of Bitcoin payments. And the World Bank refused to help El Salvador with the introduction of digital gold.

Earlier, JPMorgan questioned the benefits of Bitcoin for the country’s economy.

Recall that a recent survey of residents of El Salvador showed that 46% of respondents don’t know anything about Bitcoin.

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