A team from JPMorgan Chase & Co. has faulted the declaration of El Salvador to make Bitcoin a legal tender. According to the group, such a move could create a problem for both the country and the crypto community.
The joint team of analysts from the bank published a report on Thursday, explaining their concerns over Bitcoin’s network liquidity.
Are you looking for fast-news, hot-tips and market analysis?
Sign-up for the Invezz newsletter, today.
More than 90% of all coins have remained unmoved in over a year, with “a significant and rising faction held by wallets with light turnover.” Apart from the declining amount of Bitcoin (BTC/USD) that could provide liquidity, and increased Bitcoin adoption in El Salvador could take a large size of the existing transaction volume, the report noted.
The increased daily use of Bitcoin could limit the network
Bitcoin’s daily trading volumes are usually between $40 billion and $50 billion. However, major exchanges internalize most of these volumes, according to Veronica Bustamante, Joshua Younger, and Steve Palacio, from JPMorgan.
They also stated that the increased daily use and decreased liquidity could lead to heavy limitations on the network’s potential as a medium of exchange.
Layer 2 solution to address some concerns
But the Layer Two scaling solutions is one of the mechanisms already considered to address some of the issues raised by JPMorgan. Once the scaling solution goes live, it can lower congestion on the Bitcoin blockchain network, as explained by several players in the industry.
Layer 2 networks like RSK and Lightning have already seen adoptions in El Salvador via initiatives like Bitcoin Beach.
President Nayib Bukele also stated recently that the government of El Salvador plans to roll out its Bitcoin wallet which will be called Chivo, with plans to give a $30 Bitcoin airdrop to every adult citizen. The wallet, according to the notice, will also add a Layer 2 scaling solution and enable users to send U.S. Dollars and Bitcoin at no cost.
67% of retail CFD accounts lose money