Altcoin spot trading volume has climbed to nearly four times that of bitcoin, reaching its highest level since September last year.

On Sept. 29, blockchain media outlet CryptoSlate reported that the market has recently seen a clear shift of bitcoin profit-taking funds into altcoins. Inflows into U.S. bitcoin spot exchange-traded funds (ETFs), which supported the move, slowed for a fifth straight session.

The market focus is not the strength of altcoins itself, but the source of the funds. Wintermute said in an over-the-counter (OTC) report on Sept. 28 that net bitcoin selling appeared at its desk, and the main sellers were retail clients who took profits and then moved into altcoins. Wintermute pointed to bitcoin as the main funding source for this rotation.

On-chain data also point to the same trend. Among altcoins tracked by Glassnode, 72.5 percent outperformed bitcoin in returns through Sept. 23. That is a sharp rise from 39 percent during the bearish phase in August. Still, open interest in altcoin perpetual futures did not increase sharply over the past 30 days.

Glassnode noted that similar past moves often coincided with a short-term peak in bitcoin. Wintermute also said the breadth of the market move has widened to levels similar to past comparison periods, and in more than 80 percent of cases it then moved sideways or fell over the following weeks. Exceptions appeared in the early stage of an uptrend, but it said that for the altcoin rotation to continue, bitcoin needs to rise another step and create a new profit zone.

In practice, over the past five sessions the buyer taking in bitcoin supply has been bitcoin spot ETFs. Inflows were tallied at $999 million on Sept. 21, $714.7 million on Sept. 22, $346.9 million on Sept. 23, $190.7 million on Sept. 24 and $134.5 million on Sept. 25. The total was about $2.4 billion. Daily inflows fell each day from the prior session, and the Sept. 25 figure was 86.5 percent lower than Sept. 21.

As ETF inflows continued, profit-taking within the market also increased. Glassnode said the cumulative volume delta for bitcoin spot fell to $17.3 million, and the delta for perpetual futures recorded minus $261.5 million. Futures open interest, however, held at about $38.9 billion. The share of supply in profit rose to 74 percent from 69.3 percent a week earlier, and the realized profit-to-loss ratio also climbed to 1.4. As bitcoin holders moved to lock in gains, ETF money on the other side absorbed supply.

Funds are flowing into the broader crypto market, but the center remains bitcoin and ether. Over the same five sessions, ether spot ETFs saw $602.8 million in inflows. Bitcoin products accounted for about 80 percent of total inflows into bitcoin and ether ETFs.

Meanwhile, gains in the altcoin market have broadened quickly. CryptoQuant analyst Darkfost said the size of the altcoin market excluding bitcoin has increased by about $371 billion, or 45 percent, since June. Some 87 percent of Binance-listed altcoins are trading above their 200-day moving averages. That compares with about 20 percent in August, indicating the uptrend has spread across the market.

New sidelined money coming in is relatively limited. DefiLlama said stablecoin market capitalization was $306.4 billion, up just 0.89 percent over the past 30 days. Given the sharp rise in the altcoin market over the same period, this rally is seen as driven more by rotation of existing market funds from bitcoin into altcoins than by fresh inflows.

The macro backdrop is also a burden. The U.S. Federal Reserve on Sept. 16 raised its target range for the policy rate to 3.75 to 4.00 percent. The U.S. 10-year Treasury yield rose to about 5.23 percent on Sept. 25, its highest since 2007, and Brent crude topped $107 a barrel on Sept. 28. Wintermute cited high oil prices, elevated rates and the possibility of further Fed hikes as key external risks to the market.

Ultimately, whether this altcoin rotation remains a temporary shift in funds or develops into a broader expansion depends on bitcoin's support and ETF fund flows. If bitcoin holds the $82,500 to $87,000 range and ETF inflows continue, profit-taking funds are likely to keep spreading into altcoins.