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El Salvador Move Could Strain Bitcoin Blockchain, JPMorgan Says

  • Palacio-led team questions robustness of payment mechanism
  • Skepticism, price volatility also present issues: JPMorgan
El Salvador Accepts Bitcoin As Legal Tender
Photographer: Cristina Baussan/Bloomberg

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 $40 billion to $50 billion 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 Thursday. 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.