Analysts at JP Morgan say that the recent Bitcoin crash wasn’t because of El Salvador making Bitcoin legal tender in the country. In their view, it was more about too much froth in the market. They also said that Bitcoin is unlikely to upstage the dollar.
An article published by Business Insider today looked at the El Salvador launching of Bitcoin, as a duel national currency alongside the US dollar. According to the article, the roll-out was greeted with “protests”, and “technological difficulties”.
The JP Morgan analysts called the roll-out a “rushed mandate”, no doubt referring to President Bukele’s eagerness for his country to adopt the number one cryptocurrency. The analysts said:
“El Salvador’s ill-conceived experiment should not be critical for the future of bitcoin or cryptocurrencies. Crypto markets suffered from El Salvador’s glitches this week, but that was from a frothy backdrop,”
This kind of statement is par for the course for any traditional banking entity and the biggest bank in the US is certainly no exception.
The analysts then went on to explain how Bitcoin had absolutely no chance when put up against the dollar, as always referring to Bitcoin’s high volatility as a reason for its unsuitability.
“Few goods or services are priced or negotiated in bitcoin terms and bitcoin itself is priced in dollars,” the analysts said. “While retailers and merchants in El Salvador will over time accept and list prices in bitcoin, these prices are likely to fluctuate wildly according to the price of bitcoin in dollars.”
The analysts also added that the fixed Bitcoin supply of 21 million coins will be a deflationary system that would be “unsustainable” for most economies.
“buying power would naturally increase over time given its limited supply and therefore the price of goods and services denominated in bitcoin terms would fall over time. In such economy, the incentive by economic agents would thus be to hoard rather than spend the currency,”
It must be wondered then if these same analysts would vastly prefer the current inflationary system, whereby the spending power of your currency is being eroded at an ever-increasing rate as inflation climbs higher?
The JP analysts highlighted two more issues that were problematic in their view. One, was that the Strike payments network that sits on top of the lightning network could potentially be a security and privacy risk.
The other issue was that of the $150 million government Bitcoin trust, which, according to the analysts, may well not suffice should El Salvadoreans choose to sell their Bitcoin en-masse.
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
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