What Are the Limitations of Creating a Single Volatility Index for the Entire Crypto Market?

A single volatility index for the entire crypto market has limitations primarily due to the vast diversity and low correlation among different crypto assets. Unlike the S&P 500, which is a cohesive index of correlated stocks, the crypto market includes assets with fundamentally different use cases (e.g.

Bitcoin, stablecoins, DeFi tokens). A single index would not accurately capture the varying implied volatilities of these disparate segments.

Furthermore, the options markets for many altcoins are illiquid, making accurate IV calculation difficult.