Volatility ≠ Risk: When Timing Alpha in Crypto Markets Reflects Mispricing

ABSTRACT Volatility timing in cryptocurrency markets generates significant alpha, but only during periods of loose monetary policy and high uncertainty. Analyzing S&P crypto indices (2017–2023) dominated by large‐cap assets, we show realized volatility can reflect noise‐driven speculative flows, not risk compensation. This effect is strongest for small‐cap coins, which serve as dual vehicles for speculation and crisis hedging, unlike penny stocks. In a market with no fundamental anchor, crypto provides a pure setting to isolate flow‐based return predictability. Our findings repurpose volatility from a risk measure into a signal of time‐varying inefficiency, suggesting how dynamic strategies may exploit conditional anomalies.