Bitcoin Forecast: The Potential Problems

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After El Salvador is opening up to Bitcoin and accepting crypto as a legal tender, both the country and BTC may face various unpleasant challenges. JPMorgan according, El Salvador’s move to make Bitcoin a legal tender could create problems for the Latin American country and the leading cryptocurrency. According to JPMorgan, a huge part of the digital currency is held by wallets that have not made any changes in the past year. The illiquidity of the biggest crypto assets and the nature of the volume limit Bitcoin as a medium of exchange.

Although President El Salvador Naiib Bukele’s original goal of declaring Bitcoin a legal tender in the country was to reduce the cost of sending remittances back to the country, the move sparked a debate about the advantages and disadvantages of the new legislation.

A group from JPMorgan Chase & Co. recently pointed out that the adoption of the cryptocurrency Bellwether in El Salvador could face major challenges.

bitcoin

The volume of bitcoin trading is usually over 40 to 50 billion dollars a day. However, a large part of the BTC remains tied to illiquid entities, with more than 90% of them not moved within a year.

According to Bloomberg, JPMorgan pointed out that there is “a significant and growing part of bitcoin held by low-circulation wallets.”  The finance bank added that the illiquidity of the nature of the BTC volume indicates a potentially significant limitation of the potential of leading digital assets as a medium of exchange.

The Latin American government’s daily payment activity would account for approximately 4% of the recent volume of chain transactions and more than 1% of the total value of Bitcoin carried forward in the last year. In addition to the US dollar, which is the second legal tender in El Salvador, the high volatility of Bitcoin is another huge challenge in the country’s monetary system. El Salvador has proposed that the leading cryptocurrency become the legal tender in June. The proposal has been approved, and the country now expects Bitcoin to be adopted in early September.

The new law has faced opposition, as the country’s opposition party recently sued the government over the new law, saying it was unconstitutional. According to a survey by the El Salvador Chamber of Commerce, 80% of the country’s citizens said they would not agree to accept payments in bitcoins. In addition, the International Monetary Fund has also expressed concern about the new crypto law, citing significant risks, including macroeconomic, financial, and legal issues that would require further analysis.

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