The price of bitcoin briefly topped $35,000 for the first time since May 2022, bolstered by positive sentiment about a bitcoin exchange-traded fund and a flight to safety that led to a spike in short liquidations.

On Tuesday bitcoin rose 7.97% at $33,900.00, according to Coin Metrics. Late Monday night it reached as much as $35,113.29, its highest level since May 8, 2022. Bitcoin is now up 104% from the start of the year and 105% from its 2022 low.

The rally could be fueled in part by investors who were betting against the crypto asset scrambling to cover short positions, in other words, by a short squeeze. Bitcoin saw $275.45 million in short liquidations on Sunday, followed by another $100.44 million Monday, according to crypto data provider CoinGlass.

"The real catalyst that created the 'god candle' [Monday] and pushed bitcoin above $34,000 was the $167 million in short liquidations, mainly on offshore exchanges," Ryan Rasmussen, analyst at Bitwise Asset Management, told CNBC. "I don't think anyone expected the level of price action we're seeing, and those investors who were shorting bitcoin in the $33,000 plus range are certainly feeling the pain of that surprise."

The move, the first 10% move for bitcoin since March 14, lifted the rest of the crypto market. Ether and Ripple's XRP rose about 4% each, while Solana token added 2%. Crypto equities got a boost too with Coinbase and Microstrategy up 6.3% and 12.6%, respectively. Coinbase was up double digits at one point during the day, along with the biggest mining stocks. Marathon Digital ended the day up 11.5% and Riot Platforms advanced 10.3%.

Last week, the SEC declined to appeal a court ruling by a key deadline in Grayscale's lawsuit against it, sparking hopes a bitcoin-related ETF may be approved in the next few months. Momentum built as firms in the bitcoin ETF running updated their filings and major investors like Ark's Cathie Wood and Galaxy's Mike Novogratz emphasized that the SEC's tone has shifted and that it's now engaging positively with the industry.

A bitcoin ETF would give investors a way to gain exposure to bitcoin's price movements without owning the cryptocurrency directly. Bitcoin is considered a highly volatile asset, and its price fluctuations are unpredictable.

Major financial institutions such as BlackRock, Invesco, Fidelity and Grayscale have been pushing for bitcoin ETFs and submitted applications to sell such assets, portraying them as safer investment options compared to direct crypto investments known for their speculative nature and price volatility.

Coinbase told CNBC this week it's confident that a U.S. bitcoin exchange-traded fund will be approved by the U.S. SEC.

Bitcoin made a quick comeback in the first quarter from a dreadful 2022 that had crypto embroiled in scandals and high drama. In addition to FTX's bankruptcy, Terraform and its CEO Do Kwon were charged in February for defrauding investors between 2018 and May 2022.

Terraform's controversial stablecoin, TerraUSD (UST), collapsed last May, setting off a wave of crypto contagion throughout the year as the market was already battling rising interest rates.

Bitcoin is still off its November 2021 all-time high by about 50%.

— CNBC's Ryan Browne contributed to this story

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