El Salvador Bitcoin move will put pressure on network: JPMorgan

JPMorgan, the American megabank, continues to criticize El Salvador’s legalization of Bitcoin ( BTC), warning about the risks for the cryptocurrency and for the country.

Bloomberg Sunday reported that a JPMorgan expert group, led by economist Steven Palacio, released a report suggesting El Salvador could adopt Bitcoin as legal tender.

Experts stated that Bitcoin is extremely volatile, noting that the majority of Bitcoin trading volumes are internalized and maintained by major exchanges. More than 90% of Bitcoin has not changed hands for more than one year.

Experts at JPMorgan noted that the use of Bitcoin in El Salvador as legal tender could limit Bitcoin’s ability to be used as a medium for exchange. This is due to its illiquidity as well as trading nature.

They stated that daily payment activity in El Salvador would account for 4% of recent onchain transaction volume, and more than 11% of total tokens transferred between wallets over the past year.

JPMorgan experts noted that El Salvador adopted Bitcoin as legal tender. They also pointed out other issues, such as the possible impact on the monetary system and official dollarization.

The report stated that a continuous imbalance in demand for Bitcoin and US dollar conversions could “cannibalize onshore dollars liquidity” and ultimately lead to fiscal and balance of payment risk.

As reported previously, El Salvador’s parliament approved a bill to recognise Bitcoin legally in June. President Nayib Buukele stated that all businesses would have to accept Bitcoin.

Many global financial regulators and institutions were skeptical about the move. The International Monetary Fund warned of possible legal and financial consequences. JPMorgan analysts believe that El Salvador’s Bitcoin adoption could threaten IMF negotiations.