Bitcoin rose above $43,000 on Wednesday, suggesting that a recovery from a two month-long downtrend is underway.

Alternative cryptocurrencies (altcoins) such as FTM, XLM and the popular dog-themed shiba inu (SHIB) token led the way higher, all up more than 10% over the past 24 hours. The rally in altcoins, which typically outperform bitcoin in a rising market, reflects a greater appetite for risk among traders.

Still, there are signs that the rally in highly speculative altcoins is due for a pullback. "In the layer 1 scene, both FTM and NEAR see an open interest-to-market capitalization ratio substantially above the large-cap tokens," Arcane Research wrote in a report.

"FTM’s open interest growth has been accompanied by strong price action and substantially positive funding – at current levels, the FTM trade seems relatively crowded," Arcane wrote.

Meanwhile, option traders appear to be less bearish on bitcoin. The one-week put-call skew, which measures the cost of puts – or bearish bets – relative to calls, has fallen from 17% to nearly 0% since late Monday, according to data provided by the crypto derivatives research firm Skew.

Some analysts maintain a long-term bullish outlook for BTC, suggesting the current sell-off is a mere dip in broader upcycle. For example, StackFunds, a Singapore-based crypto investment firm, has a price target of $120,000 BTC this year.

Still, investors will still have to brace themselves for volatility. "We are expecting crypto markets to be extremely disjointed the next few months, inducing choppiness that overflow from equities, as investors navigate a new era of inflation," Lennard Neo, head of research at Stack Funds, wrote in a report.

"A byproduct of consistent downtrends in price are the liquidation of confident long traders trying to catch a falling knife," crypto data firm Glassnode wrote in a blog post. That could mean BTC is approaching a short-term bottom, especially given the recent downtrend in price and the subsequent rise in liquidations.

Liquidations occur when an exchange forcefully closes a trader’s leveraged position as a safety mechanism due to a partial or total loss of the trader’s initial margin. That happens primarily in futures trading.

The chart below suggests short traders, or those positioned for a price drop, could soon face liquidations if BTC enters a recovery phase, similar to what occurred last July.

Most digital assets in the CoinDesk 20 ended the day higher.

Largest winners:

Largest losers:

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.