Macro Outlook: A Market Split in Two
The world enters the final stretch of 2025 in a rare crosscurrent.
Growth is cooling, but liquidity hasn’t fully drained. Inflation lingers, but rate-cut expectations are rising. We’re seeing the outlines of a regime shift: one where capital chases resilience, and volatility replaces stability as the new normal.
Global policymakers are in transition, moving from tightening to neutral yet supply-side shocks, re-armament, and political realignments keep the floor under inflation. Valuations in equities are elevated, debt markets uneasy, and risk premia look artificially compressed.
In short: this isn’t a “steady” market. It’s a two-speed system – part FOMO, part fear.
And that’s where we thrive.
1. Crypto & Digital Assets: The Volatility Core
Digital assets are back at the center of speculative and structural flows. Bitcoin sits north of $100,000, total crypto market cap above $4 trillion, and institutional participation is rising. ETFs, tokenization platforms, and stablecoin frameworks are transforming crypto from a retail fad into a financial substrate.
But let’s be clear – this phase is high velocity, high risk.
Cycles are shortening. Whales, funds, and liquidity providers now dictate moves that once took months.
Our Outlook
- Short term (Q4 2025): Continued volatility with upside bias. Spot inflows remain strong, but any failure to break new highs could trigger 25–30 % drawdowns.
- Medium term (2026): Regulatory clarity and real-world integration (tokenized assets, on-chain treasuries) push crypto toward legitimacy – and maturity. Expect institutional capital rotation, not blind speculation.
Our Positioning
Third State maintains a high-conviction core in Bitcoin and Ethereum infrastructure plays, complemented by select thematic altcoins tied to DeFi and real-world asset tokenization.
Risk is managed actively with derivatives and cash-secured options.
Crypto remains our engine of asymmetry – large upside, controlled downside.
2. Defense & Aerospace: The Re-Armament Super-Cycle
Global defense budgets are expanding at the fastest pace in three decades. Europe is rebuilding capacity, Asia is re-arming, and the U.S. industrial base is in full revival.
For us, this is not a short-term trade – it’s a structural megatrend.
We view defense and dual-use technology as the new “AI trade”: grounded in necessity, funded by governments, and driven by security spending rather than sentiment.
Our Outlook
- 2025: Rising procurement and backlog strength support valuations, even amid higher rates.
- 2026: Continued upside if geopolitical flashpoints persist; risk emerges only from peace or fiscal restraint.
Our Positioning
We hold a concentrated portfolio of global defense and aerospace leaders, paired with emerging suppliers in cybersecurity, space, and autonomous systems.
We hedge exposure tactically but stay long-bias: defense remains the most under-owned bull market in the world.
3. Commodities & Critical Materials: The Volatile Middle Ground
Commodities are split in two directions – soft growth vs hard scarcity.
Industrial metals face demand headwinds, but defense metals, rare earths, and precious metals are staging their own mini-bull markets.
Our Outlook
- Base metals: Range-bound into 2026 unless China re-accelerates.
- Energy: Supply disruptions could cause episodic spikes; positioning via futures optionality remains attractive.
- Precious metals: Gold and silver continue to serve as volatility hedges and monetary alternatives.
Our Positioning
Third State maintains gold and silver as core stabilizers in our portfolio while trading volatility in energy and industrial commodities.
We selectively accumulate positions in copper, titanium, and rare-earth producers tied to the defense and electrification cycle.
4. Equities: The Age of Selectivity
Broad equity indices look tired.
Valuations are stretched, margins are narrowing, and the index trade no longer offers asymmetric returns.
The future belongs to theme-driven capital – investors willing to own the few sectors that still compound growth in a fractured world.
Our Outlook
- The S&P 500 likely stays range-bound through year-end.
- Defensive sectors (energy, defense, infrastructure) outperform growth.
- Emerging markets and frontier economies offer undervalued exposure to global re-industrialization.
Our Positioning
We keep our equity exposure thematically concentrated – digital infrastructure, defense suppliers, energy security, and frontier-market tech.
Broad indices are hedged with volatility exposure and short index puts when risk/reward skews.
Scenario Map
| Scenario | Trigger | Impact | Third State Response |
|---|---|---|---|
| Upside / Acceleration | Institutional crypto inflows, geopolitical escalation | Crypto + defense surge | Lean risk-on, expand conviction exposure |
| Base Case | Slower growth, sticky inflation | Range-bound assets | Maintain rotation strategy, hold volatility buffer |
| Downside / Deflation Shock | Policy misstep, demand collapse | Broad selloff | Reduce risk, rotate to gold & cash hedges |
The Third State View
The coming year will not reward comfort.
It will reward conviction, timing, and volatility management.
We don’t chase hype, we position for regime change.
Crypto isn’t just a trade. Defense isn’t just a sector. Commodities aren’t just hedges.
They’re signals of a world rewriting its financial architecture.
At Third State, we thrive in that chaos because volatility is where the next state of wealth begins.
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