Bitcoin (BTC) and most other cryptocurrencies traded slightly higher on Tuesday as investors position themselves ahead of the U.S. Federal Reserve's policy announcement Wednesday.

Analysts expect the Fed to raise interest rates by 25 basis points, which could tighten financial conditions that have supported the rally in speculative assets over the past year. The Fed is also expected to announce a plan to reduce its nearly $9 trillion balance sheet.

Meanwhile, a fourth round of talks between Russian and Ukrainian diplomats continued on Monday, although there was no agreement on a ceasefire.

In crypto markets, bitcoin lagged alternative cryptocurrencies (altcoins) on Tuesday, which could reflect a greater appetite for risk among traders. BTC was up about 2% over the past 24 hours, compared with a 5% gain in ether (ETH) and a 20% rally in The Graph's GRT token.

Still, there is still a high degree of uncertainty in the market. "Funding rates (the cost of holding long positions in the perpetual futures listed on major exchanges) on BTC perpetual futures contracts remain in limbo, unable to hold positive or negative for an extended period," Fundstrat Global Advisors wrote in a Tuesday email. "This indicates that traders are unwilling to make significant bets one way or another."

Some analysts expect selling pressure to wane across speculative assets, including equities and cryptos.

"Key capital market indicators show that a significant slowdown in global growth is already discounted," MRB Partners, an investment strategy firm, wrote in a recent report. Once geopolitical tensions ease, global equities could have meaningful upside, according to MRB. That could be positive for crypto given the rising correlation between bitcoin and stocks.

Further, market participants have already positioned themselves for seven Fed rate hikes this year, in addition to the 25 basis point hike that is expected Wednesday, according to swaps data. Over time, barring any policy missteps or surprises, the market's reaction to rate hikes could be less volatile.

For crypto markets, extreme bearish sentiment could point to an eventual unwinding of short positions if prices move higher.

The charts below show peak-to-trough declines in bitcoin and global equities. Recent sell-offs have been severe, albeit above prior extremes (except Chinese internet stocks).

Digital asset investment products saw $110 million in outflows last week after reaching the highest inflows in three months the week before. That could reflect a cautious tone among crypto investors amid macroeconomic and geopolitical risks.

Dispersion across assets: $69.9 million exited bitcoin funds, $50.6 million exited ether funds and flows for other cryptos were modestly positive.Still some appetite for crypto: Despite outflows in digital asset funds that directly invest in cryptocurrencies, investment products focusing on blockchain-related stocks remained very popular, according to a CoinShares report, with inflows of $4 million last week. Read more here.

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Digital assets in the CoinDesk 20 ended the day higher.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive, and standardized classification system for digital assets. The CoinDesk 20 is a ranking of the largest digital assets by volume on trusted exchanges.