Bitcoin traded in a narrow range near $65,000 on Monday as a surprise diplomatic pause between the United States and Iran over the Strait of Hormuz triggered a sharp drop in energy prices and buoyed risk assets across global markets. The largest cryptocurrency by market capitalization changed hands around $64,850 during Asian hours, holding weekend gains while traders positioned for the Federal Reserve's policy announcement scheduled for Wednesday.

Brent crude futures tumbled more than 7% to trade below $78 a barrel after Washington and Tehran agreed to temporarily halt military operations in the strategic waterway, according to officials cited by major newswires. The de-escalation removed a key geopolitical risk premium that had supported oil prices for weeks, sending equity futures higher and providing a tailwind for digital assets correlated with broader risk sentiment.

Decentralized finance tokens outperformed the broader crypto market, with the CoinDesk DeFi Select Index rising 3.2% in the past 24 hours. Governance tokens for major lending protocols and decentralized exchanges led gains, reflecting renewed appetite for yield-bearing assets as oil's decline eased inflation concerns. Total value locked across DeFi protocols climbed back above $95 billion, recovering from last week's pullback.

Ether, the second-largest cryptocurrency, outperformed bitcoin with a 2.1% gain to $3,420. The token benefited from both the broader risk-on move and anticipation around the upcoming Pectra upgrade, which developers confirmed remains on track for a September testnet deployment. Staking yields held steady near 3.2% annualized, while the ETH/BTC ratio edged up to 0.0527.

Stablecoin supply continued its gradual expansion, with Tether's USDT market capitalization reaching a fresh record above $118 billion. USDC supply also ticked higher, surpassing $35 billion for the first time since March. The growth in dollar-denominated stablecoins suggests fresh capital is entering the ecosystem, potentially positioning for deployment into DeFi strategies if the Fed signals a dovish pivot.

Analysts cautioned that the geopolitical reprieve may prove temporary. The Strait of Hormuz remains a flashpoint, and any renewal of hostilities could quickly reverse the oil price decline. Meanwhile, the Fed's dot plot and Chair Jerome Powell's press conference Wednesday will provide the next major directional cue for risk assets. Until then, bitcoin's range between $63,000 and $67,000 is likely to hold.

• DeFi tokens outperformed, with the sector index gaining 3.2% and total value locked recovering above $95 billion

• Markets await Wednesday's Fed decision, with options pricing a 65% chance of a 25-basis-point rate cut

• Stablecoin supply hit fresh records, signaling potential dry powder for deployment into crypto markets