Bitcoin pulled back after Monday's blockbuster rally, dropping below $86,000 but still hovering around its highest levels since late January.

The flagship cryptocurrency partly pared earlier losses to trade 1.1% lower at $85,978 in Tuesday afternoon London trade, having briefly punched through $87,000 in the previous session. The move caused some market participants to declare an end to the "crypto winter" that has kept prices depressed and sentiment low since October's all-time high.

The rise came during a short squeeze, with more than $612 million of bitcoin short positions liquidated in the past 24 hours, according to Coinglass data. Bitcoin moved in tandem with broader risk assets, with the Nasdaq rising 2.2% to a new record on Monday.

"[Bitcoin's] move reflects improving risk appetite, but also the fragility of speculative positioning in a higher-rate environment," wrote Patrick Munnelly, partner at Tickmill Group.

"Crypto can benefit from liquidity optimism and risk-on flows, but with the Fed, ECB, BOE and BOJ all leaning hawkishly, the asset class remains exposed to any renewed tightening in financial conditions," he said.

Cryptocurrency markets had defied two potential hurdles--a failure to pass the Clarity Act and the Federal Reserve's quarter-point rate hike--to finish last week higher. The wider blockchain ecosystem is also benefiting from a return of risk appetite, with Strategy Inc. rising over 9% on Monday. Michael Saylor's bitcoin treasury firm revealed on Monday that it bought $75.7 million of bitcoin last week--its first purchase since Aug. 31.