JPMorgan Chase analysts believe that there are several challenges for El Salvador and its recent policy of making bitcoin legal tender.
American multinational investment bank JPMorgan Chase believes that El Salvador’s decision to make bitcoin legal tender could impact the Bitcoin blockchain itself. Bloomberg reported on July 11 that a team from the bank said that the decision could impact both the country and the market’s top asset.
The JPMorgan analysts highlighted illiquidity and the nature of transaction volumes as being “potentially a significant limitation on its potential as a medium of exchange.” Should bitcoin become a common means of payment, daily payment activity would represent 4% of recent on-chain transactions, as well as over 1% of the total token value that has been transferred between wallets in the past year.
It’s hard to say how much of an impact bitcoin will have if an entire small country were to begin using it as a daily means of exchange. The scale of the operation and quickness with which El Salvador has made bitcoin legal tender has left some experts questioning the decision. Other issues related to the law include public unfavorability regarding the effectiveness of bitcoin as a means of payment.
Others have also commented on the potential ramifications of El Salvador’s decision. The International Monetary Fund (IMF) said earlier this year that the country’s ruling had macroeconomic and legal issues. The World Bank has also denied assistance to the country, indicating the concerns that these large financial institutions have.
The opposition party in El Salvador has also filed a lawsuit as a result of the passing of the bill. Government ministers have also pointed out that there would be challenges associated with making salary payments in bitcoin, given the volatility of the asset.
El Salvador marches on
Despite the resistance El Salvador has faced both internally and externally, the country and its current leadership are continuing to trudge on with the new change. The most recent update involved the announcement of a new wallet that would give users $30 worth of bitcoin after being downloaded. This app is scheduled for launch in September.
The country also plans to get into the mining game, with the current agenda being using volcanic energy to power mining. There has been little news on this following the initial reveal, but it appears that the government is going all-in on crypto.
President Bukele believes that the introduction of bitcoin will help with remittance payments and rope in a greater deal of the public into the banking system. It remains to be seen how much of a positive impact this change will have, and many countries are keen on seeing how the implementation pans out.