Bitcoin Holds $113K as Liquidity Thins, Traders Turn Defensive Before Fed Week

Bitcoin hovered near $113,000 in Asian afternoon hours Wednesday as traders positioned cautiously ahead of this week?s Federal Reserve policy decision, with fading liquidity and a stronger dollar weighing on sentiment across risk markets.

The world?s largest cryptocurrency remained up 4.5% over the past week but slipped 0.7% in the past 24 hours, mirroring modest losses across major tokens. Ether (ETH) traded at $4,028, down 1.4%, while Solana?s SOL and Binance?s BNB each declined about 2%. XRP held slightly higher near $2.62, extending a strong seven-day run as traders rotated into high-volume tokens.

The moves come ahead of a pivotal Federal Open Market Committee (FOMC) meeting on Oct. 28?29, where officials are widely expected to cut benchmark rates by 25 basis points to the 4.00%?4.25% range.

?The fluctuating macroeconomic backdrop is the dominant driver of this crypto cycle,? said Thomas Perfumo, global economist at Kraken. ?A 25bps cut this week appears highly probable, and the market is already pricing in another by December. But the October 10 sell-off underscored how exposed crypto and risk assets remain to exogenous shocks.?

Perfumo noted that the balance between institutional inflows and treasury demand has shifted, tempering near-term momentum even as longer-term capital remains sticky.

?Demand from digital-asset treasuries like MicroStrategy is slowing, but ETF flows continue to skew bullish, even during drawdowns,? he said. ?That resilience shows crypto?s growing foothold with traditional finance, even as short-term risk tolerance has dropped since the October liquidation event.?

Beyond the Fed, traders are also watching tightening liquidity conditions. Early signs of renewed stress among U.S. regional banks and a still-uncertain global macro environment have left market depth sharply lower across centralized exchanges.

?Liquidity is tightening,? said Alice Li, partner at Foresight Ventures. ?Early signs of U.S. regional bank stress could push the Fed to pause QT sooner, but inflation risks keep policymakers cautious. BTC extended its drawdown and altcoins sold off broadly as CEX order-book liquidity fell to around 40% of pre-drop levels.?

BNB-led names dominated relative outperformance as exchange-linked tokens stabilized following weeks of deleveraging, while speculative altcoins remained ?PVP ? fleeting, event-driven, and low conviction,? Li added.

Despite the subdued tone, some analysts say crypto markets are stabilizing after the October 10 flush that saw nearly $1.2 billion in leveraged positions wiped out. Total crypto capitalization sits around $3.9 trillion, comfortably above key moving averages, even as sentiment remains fragile.

FxPro analyst Alex Kuptsikevich noted that bitcoin?s technical setup still leans constructive: ?BTC remains above both its 50-day and 200-day moving averages. The $117K?$120K area is a strong resistance zone, but the rebound from $108K support keeps the bull structure intact.?

As liquidity tightens and leveraged positioning rebuilds, volatility may spike around Wednesday?s Fed announcement ? especially if Powell?s tone signals slower easing.