According to JPMorgan Chase & Co., the risks that El Salvador bears after the introduction of bitcoin as a legal tender are very significant, which can create a number of problems for both the country and the cryptocurrency.
Bitcoin trading volume is currently around $40-50 billion per day, but most of it passes through major cryptocurrency exchanges. Another part of bitcoin is blocked on illiquid addresses, while more than 90% of these bitcoins do not even change hands for a year or more.
After the statements made by the authorities of El Salvador, the daily payment activity using bitcoin in the country jumped to 4% of the volume of transactions within the network, which is about 1% of the total volume of issued tokens. This can seriously affect the prospect of bitcoin as a means of volume.
The initiative of El Salvadoran President Nayib Bukele to make bitcoin a legal tender in the country has caused a lot of controversy about whether it is profitable and what problems can result from it. Bukele said that bitcoin will help counter the low level of banking services in the country and reduce the cost of money transfers. But the International Monetary Fund, which is currently negotiating with El Salvador about its loan program, is among those who question this rationale. Even many supporters of bitcoin say that it is really a good means of saving, but its usefulness as a payment mechanism is significantly limited.
The IMF is confident that El Salvador's adoption of bitcoin as a legal tender may entail a number of risks and problems on the side of the Central Bank. The adoption of bitcoin as a legal means of payment raises a number of macroeconomic, financial, and legal issues that require careful analysis. The IMF experts believe that crypto-assets can create significant risks, and effective regulatory measures are very important when working with them.
But, in addition to this, JPMorgan also sees a number of other problems related to El Salvador and bitcoin. Recent surveys among experts indicate a fairly widespread skepticism about bitcoin as a means of exchange. The high volatility of bitcoin is another problem along with the official dollarization in the country. A steady imbalance in demand for the conversion of bitcoins into US dollars and vice versa can seriously hit dollar liquidity, which will eventually lead to fiscal problems and the risk of inflating the balance of payments, JPMorgan said.
El Salvador has recently approved a law allowing companies to accept bitcoins in exchange for goods and services. President Nayib Bukele stressed that the digital currency will help to resist the low status of the entire banking system of El Salvador, as well as reduce the cost of sending money transfers. He did not forget to mention the great future of the country's economy thanks to the introduction of bitcoin.
As for the technical picture of bitcoin, it has not changed after the weekend. Buyers have real problems with the breakout of the $36,000 resistance, which creates quite a lot of problems for further growth. Going beyond this range will lead to a new upward wave to the upper limit of the side channel at $41,100. Only after the breakout of this range can we seriously discuss the topic of a new wave of BTC growth to the highs of $46,700 and $52,000. The bears face a completely different task. To begin with, they need to keep bitcoin above $36,000, but a breakdown of the lower border of the side channel in the area of $30,000 will collapse the rate to the lows at $25,700 and $21,650.
