Welcome to the final quarter of 2019.

Let’s recap how digital currencies are doing compared to the macro outlook and see if we can’t glean some insights into how to play this next quarter.

By far the biggest impactful events of the past 3 months are all related to macro-economic forces: trade war escalation, yield curve inversion, quantitative easing (or at least QE-lite), and the looming fear of “the big one”, a recession due to global slowdown.

In the eye of this storm, Bitcoin and the entire crypto market has not shown much to instill confidence.

Instead, precious metals are one of the best-performing sectors in Q3 and over the first nine months of 2019. Silver had an astounding 11% gain, while palladium is up almost 7.5% and gold shows strength with a 4% gain. And yet, with a trade war seemingly on standstill, precious metals are down 4% on the 1-month chart, with silver leading the losses at nearly 10%.

But, the crypto sector has fared even worse.

As we’ve seen, Bitcoin is practically running the entire crypto market, with 2/3’s of the market dominance under control and most large caps showing only a 50-60% price correlation.

Year to date, the large caps (top 20) have returned an impressive aggregate ~70%, with Bitcoin returning a staggering 126% YTD, with a 149% delta between the yearly low of $3355 on Feb 8, and the yearly high of 13844 on June 26.

This makes the -26% 3-month and -22% 1-month performance somewhat dismissible, but still we must acknowledge that, other than 3 short-term spikes to the upside, Bitcoin and the larger crypto market are in a very aggressive larger downtrend.

So, let’s address some of the market forces behind this.

One big driving force, both for and recently against Bitcoin, is the Central Bank monetary policy race to the bottom contest going on worldwide right now.

In particular, we should look at the US Dollar, given its reserve currency status and recent weaponized use in trade wars and tariffs.

On June 18, the Fed became even more dovish as recent economic data, and the escalation of the trade dispute between the US and China caused the central bank to guide that the Fed Funds rate would lower before the end of 2019. At the July 31 meeting, the Fed lowered the rate by 25 basis points and immediately ended the program of quantitative tightening. Gold had been rallying on the prospects of lower interest rates, and the moves by the Fed lit a bullish fuse under the yellow metal.

The escalation of the trade dispute between the US and China increased fear and uncertainty in markets in Q3. On August 1 the President slapped new tariffs on China, and the Chinese retaliated.

Late August and September seemed to cool tensions to the trade war. We can see the interest in “trade war” drop off almost in tandem with a rising S&P 500.

During this period China dealt with escalation in Hong Kong protests (and worldwide attention as a result) while in the US, Democrats in the House of Representatives have begun an impeachment inquiry against President Trump. The 2020 Presidential campaign season is now moving into full swing. While the 2016 campaign was one of the most divisive in history, the upcoming election is likely to be even more contentious.

At the same time, the temperature increased in the Middle East in Q3 when a drone attack on Saudi Arabian oil fields temporarily knocked 50% of Aramco’s daily production offline. The tensions between Saudi Arabia and Iran continue to rise in the region. U.S. and European relations with Russia remain strained. Saudi sovereign territory via missile attacks from Yemen.

The pessimistic narrative of slowing global growth and never-ending central bank stimulus seemed to permeate to every news story on the market throughout Q3.

What’s ironic is that we’ve begun to question the market’s reasoning that such events were “inevitable” as economic data began to show mild signs of improvement. Fast forward a few weeks and it appears the situation isn’t as bad as some made it out to be (at least not currently on the surface).

But don’t be fooled.

The warning signs were there in 2007 and yet many chose to ignore or pacify them.

The recent improvement in key economic indicators can’t fix a system hellbent on printing money and easing itself off a cliff.

Risks to the economic outlook remain elevated despite the moderation in trade spats, which are largely responsible for the decline in capex forecasts and growth expectations for many U.S. firms.

So, what are we to do?

Well, here’s what I think:

Despite a glimmer of optimism in the broader markets, October is notorious for bearish sentiment in the stock market.

That anecdote aside, I can see the beginnings of a bigger storm. We’re not about to see a true de-escalation of the trade war nor are we about to see monetary policy stop printing money.

2020 is shaping up to be a seminal year for the global economy.

Bitcoin has shown that it wants to play as a hedge against chaos, and rightfully so.

Furthermore, you need only look at the data to assuage any fears about BTC price recovery.

BTC gains roughly 11% on average after 30 days once there’s a loss of at least 10%. Compare this to only to 8.5% in “normal” circumstances.

But even that aside, I think it’s important to stress the absolute magnitude of shifting forces and that BTC won’t always be on the right side of a trend.

It’s important to plan for the future by diversifying yourself out of circumstances that necessitate hanging onto one sector, one chart.

Plan for the best, diversify for the worst.

Here’s to hoping the end of 2019 brings some fire back into the space. We could use it.