The Traeger pellets may be your problem. My feeling is that they're just not designed for cold smoking. I have a big bag of them that I've stopped using for the very same reason. At first I was content with the results because I'd never cold smoked before and was just stoked that my homemade smoke tube did the job. But I was never terribly happy with the results. I chalked it up to me not letting the food rest long enough, or just not being familiar with the way real smoked food should taste. Then I decided that was a load of crap and the food did, in fact, taste bad. Not only was it like licking an ashtray, there was a solvent, almost lighter fluid flavor. Then I did a little research, read the bag, and discovered these aren't actually apple wood at all. They're "base wood", which depending where they're manufactured can be anything from oak to ash to recycled shipping pallets. Then they have a flavor oil sprayed on. YUM!!! Now in the smokers for which these things are intended, this isn't as much of a problem since the pellets are being completely burned at a higher temp and the volatile oils in the "flavor oil" are burned off. But in a cold smoker, the combustion is nowhere complete and all that nasty stuff in whatever the base wood is, as well as the flavor oil, goes right on your food. I further convinced myself by loading my tube with real pecan chips. The difference was night and day. The food had a delicious smoke flavor without any of the nastiness. To be fair, I haven't tried any 100% hardwood pellets as it's been quite a while since I cold smoked, but this fall I'm going to do some more bacon and cheese and feel quite confident that good pellets will lead to good smoke.
Long story short, lose the Traeger pellets and get some 100% flavor wood pellets from Todd Johnson on here or another reputable vendor and you'll achieve much better results.