- JPMorgan gives reasons behind Bitcoin’s limitations as a legal tender.
- One factor is that 90% of Bitcoin’s supply is in illiquid hands
- Another is Bitcoin’s volatile nature.
JPMorgan, the Global Investment bank, believes that making Bitcoin (BTC) a legal tender in El Salvador is not the best move. It went on to list out the reasons behind BTC’s ‘limitations in terms of being a legal tender.
In detail, the entity says that problems are likely to occur as most of the BTC supply is in the hands of illiquid hodlers. That is, a whopping 90% of BTC that hasn’t been moved for over a year.
Moreover, the daily payment activity in the country is just around 4% when talking about the recent on-chain transaction volume. More so, only 1% of the total value in tokens has been moving between wallets in about a year.
This points to one of the possible limitations of BTC as a legal medium of exchange. Specifically, El Salvador made Bitcoin a legal tender on June 8, 2021. However, it will, as a county, only begin to formally adopt Bitcoin as a legal tender from September 7, 2021.
Some believe that this move to making BTC a legal tender in the country could be related to empowering national corruption. Meanwhile, only about 25% of the country’s citizens are looking forward to embracing BTC.
On the other hand, the Deputy of El Salvador’s opposition party went on to directly sue the country over the Bitcoin law. This shows that some believe the move might be violating their constitutional rights. Also, a poll suggests that 46% of the nation’s people have no idea about Bitcoin.
Finally, the bank highlights other key issues that pose limitations to crypto as a legal tender. For instance, BTC’s volatility, and the nation’s dependence on the US dollar, could be a threat to its economy.
Lastly, it adds that any more such decisions from government bodies could threaten the very nature of onshore dollar liquidity. In turn, it will increase the risk of weak payments and can lead to broken fiscal stability.
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