| 20 May 2024, Monday |

Paraguayan MP To Test BTC Bill This Week, JPMorgan Questions Bukele’s Move

Traditional financial analysts are pouring uninformed scorn on El Salvador’s President Nayib Bukele’s bitcoin (BTC) adoption plans – while a Paraguayan MP says he has backing from a senator in his bid to launch a similar project in his own country.

One of the most vocal of the Latin American lawmakers who have vowed to unveil Bukele-style legislation in their own countries says his own private member’s bill will roll out on Wednesday this week. Last month, Carlos “Carlitos” Rejala announced that he had started “on an important” BTC adoption-related “project that will help innovate Paraguay for the whole world to see.”

But in a Twitter post, Rejala claimed he had enlisted the support of Fernando Silva Facetti, a long-serving senator for the Authentic Radical Liberal Party, the second-largest party in the Paraguayan upper house.

Rejala claimed – in English – that he was “here to unite Paraguay,” adding: “That is why we decided with Senator Facetti to present the bitcoin bill on Wednesday, July 14.”

“Stay tuned since there will be a mega surprise for Paraguay and the world. Something giant is coming,” he added.

Rejala’s Hagamos Party has two MPs in the lower chamber, as well as two senators. Both houses are dominated by the ruling Colorado Party, with no parties yet forthcoming with any thoughts on the bill. That could potentially change on Wednesday, when the draft bill is unveiled, however.

In a post of his own, Facetti wrote: “Paraguay must adapt to the new digital world and strengthen itself as a focal point of energy transformation for digital investment.”

He added that the “cryptoasset industry needs to be regulated in order to provide legal, financial and fiscal security, and establish control and supervision mechanisms,” opining that cryptoassets “are commodities that must contribute to our fiscal balance.”

Meanwhile, as reported, there are now just weeks to go until BTC officially becomes legal tender in El Salvador in September. Despite a number of opposition bids to derail the proposal, Bukele has almost total control over the house – while efforts to overturn the law in the Constitutional Court also appear set to fail.

At the same time, analysts at JPMorgan raised question marks about BTC’s suitability as a form of payment and could raise liquidity concerns, per Bloomberg.

“Daily payment activity in El Salvador would represent around 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 analysts said.

They were quoted as stating that illiquidity and nature of the forecasted volume shifts could “potentially” be “a significant limitation on [bitcoin’s] potential as a medium of exchange.”

However, the authors did not mention that El Salvador is going to use the Lightning Network (LN), or a second-layer BTC scaling solution, to make widespread bitcoin payments possible in the Latin American nation, with LN capable of a potentially infinite number of transactions per second.

Also, according to the analysts, high levels of BTC volatility would be a challenge “in a bimonetary system alongside official dollarization.” And the authors concluded that a continued imbalance of demand for bitcoin-USD trades on a government-run platform could “cannibalize onshore dollar liquidity” – leading to possible “fiscal and balance of payments risk.”

And they added that “recent surveys” hinted that there was “widespread skepticism and hesitance” about using bitcoin “as a medium of exchange.

More than three-quarters of surveyed Salvadorans are skeptical of BTC being recognized as legal tender in the country, Reuters reported last week, citing a country-wide survey of 1,233 people. It showed that about 54% of those surveyed viewed the bitcoin adoption as “not at all correct” while another 24% described it as “only a little correct.”