Bitcoin's Popularity: What Does It Say About The State Of The Economy?

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by: Russell Investments

On the latest edition of Market Week in Review, Rob Cittadini, director, Americas Institutional, and Adam Goff, managing director, investment practice, discussed the rising popularity of bitcoin - the digital currency which has experienced an explosive increase in value in recent weeks.

Bitcoin's price surges - A sign of a healthy economy?

Bitcoin has taken the financial industry by storm recently, Goff noted, as the average price of a single bitcoin rose to nearly $18,000 on Dec. 7, per CoinDesk's Bitcoin Price Index (BPI). The attention centering around bitcoin is remarkable, Goff said - and is a sure-fire sign of the health of the economy overall. "The willingness of many to engage in speculative investing shows how much money people have in their pockets," he said.

From Goff and the team of Russell Investments strategists' point of view, there are parallels between the frenzy over bitcoin today and the excitement over technology stocks in the late 1990s and the housing market in the mid-2000s. Why? In both instances, interest surged late in the market cycle.

"The rise in popularity of bitcoin is an interesting sign of where sentiment in the market is at," Goff said - "but it's very difficult to evaluate from a valuation standpoint." Because of this, bitcoin is not something he recommends including in a multi-asset portfolio.

Tax reform efforts move forward as latest U.S. jobs report shines

Turning to the topic of tax reform in the U.S., Goff said there's an increasing feeling among many that Congress will soon finalize a bill significantly reducing the corporate tax rate. "The devil is in the details, and there are still some issues to be worked out," he noted, "but we believe legislation will ultimately be passed."

The bigger question, Goff said, is how an overhaul of the tax code will impact the global economy. He predicts that the effects will be "mildly stimulative," noting that we're at a time when the world's economy is growing in a synchronized manner rarely seen before. "In all honesty, we might not even notice the addition to global or U.S. economic growth that tax reform provides," he said. As evidence, Goff pointed to the recently-released U.S. employment report for November, which showed that the nation added 228,000 jobs in the past month. "It's steady as she goes when it comes to continued growth in the U.S.," he remarked.

Trade talks up next in Brexit negotiations after divorce bill finalized

Shifting to Europe, Goff said the recent agreement struck between European Union and UK leaders over the so-called Brexit divorce payment was significant, as it moves negotiations on to the next stage. "Frankly, coming to terms on the amount of money the UK needs to pay the EU - roughly $53 billion, per the agreement - was a low hurdle to cross," he said, adding that the deal also will leave the border between Northern Ireland and the Republican of Ireland porous.

Next up at the bargaining table? Trade talks, Goff said - which he believes could be particularly intense. "These conversations aren't going to be about just one sub-set of goods," he explained. "Rather, they'll involve a full range of both goods and services." Ultimately, while progress has been made, there's plenty more to sort out ahead, Goff concluded.

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