SAN SALVADOR: El Salvador’s declaration of bitcoin as legal tender could create challenges for both the country and the cryptocurrency, according to a team from JPMorgan Chase & Co.

       Bitcoin trading volumes commonly exceed US$40bil to US$50bil (RM167bil to RM209bil) per day, but most of that is internalized by major exchanges, said a group from JPMorgan including Steve Palacio, Joshua Younger and Veronica Mejia Bustamante, in a report.

       A large portion of bitcoin is locked up in illiquid entities, with more than 90% not changing hands in more than a year -- with a “significant and rising fraction held by wallets with light turnover, ” they added.

       “Daily payment activity in El Salvador would represent ~4% of recent on-chain transaction volume and more than 1% of the total value of tokens which have been transferred between wallets in the past year, ” the report said, with the illiquidity and nature of the volume “potentially a significant limitation on its potential as a medium of exchange.” — Bloomberg

       El Salvador President Nayib Bukele’s initiative to make bitcoin legal tender in the country has set off a raft of debate about whether it’s beneficial and what the ramifications could be. The 39-year-old Bukele has said that bitcoin will help counter the country’s low banking penetration rate and cut the cost of sending remittances.

       But the International Monetary Fund -- which is in discussions with El Salvador about its credit programme now -- is among those who have questioned that rationale.

       Even many proponents of bitcoin say that, while there’s an argument it’s a good store of value, its utility as a payments mechanism is limited.

       “Bitcoin is the worst payment system ever invented. It’s terrible, ” said William Quigley, the co-founder of stablecoin Tether and a pioneer of multiple aspects of the cryptocurrency space, in a recent video interview. “Almost any token is better than bitcoin as a payment system.” - Bloomberg