Bitcoin move in El Salvador will put pressure on the network: JPMorgan

American banking giant JPMorgan continued to criticize El Salvador’s declaration of Bitcoin (BTC) as legal tender, warning of potential risks to both the country and the cryptocurrency.

A team of JPMorgan experts led by economist Steve Palacio has released a report suggesting that El Salvador’s adoption of BTC as legal tender could put a strain on the Bitcoin network, Bloomberg reported on Sunday.

Experts say Bitcoin is very liquid and note that most of the Bitcoin trading volume is internalized by major exchanges, with over 90% of Bitcoin not changing hands in more than a year.

JPMorgan experts noted that the use of Bitcoin as legal tender in a country like El Salvador would potentially cause a “significant limitation” on Bitcoin’s ability to act as a medium of exchange, indicating the cryptocurrency’s transactional and illiquid nature.

“Daily settlement activity in El Salvador will represent 4% of the most recent transaction volume in the chain and over 1% of the total value of tokens transferred between wallets over the past year,” they said.

JPMorgan experts also noted other challenges associated with El Salvador’s adoption of Bitcoin as legal tender, including the potential impact on the monetary system along with official dollarization. The report added that the persistent imbalance in demand for bitcoin and US dollar conversions could “eat up the liquidity of the domestic dollar” and ultimately lead to financial and balance of payments risk.

Connected: UN Commission issues new warning about the introduction of BTC in El Salvador

As previously reported, El Salvador’s Congress passed a bill to recognize Bitcoin as legal tender in early June, with President Nayib Bukele declaring that accepting Bitcoin will be mandatory for all businesses. Some global regulators and financial institutions have been skeptical of the move, with the International Monetary Fund warning of possible legal and financial ramifications. JPMorgan analysts suspect that El Salvador’s introduction of Bitcoin could jeopardize IMF negotiations.