What Is Fully Diluted Valuation (FDV) in Crypto?

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When you're evaluating a cryptocurrency project, you'll often come across metrics that provide insight into its potential total value. One of these is Fully Diluted Valuation (FDV), which estimates the market capitalization — or market cap — if all tokens, including those not yet in circulation, were available today.

FDV represents the total supply, while the circulating supply refers to tokens that are actively traded. Understanding FDV helps you assess a project's overall worth rather than just the number of tokens currently available on the market. This offers a more comprehensive view of a project's prospective value.

Key Takeaways

Fully Diluted Valuation (FDV) Explained

Think of FDV like buying a house that's still under construction. You can only see part of it now, but you know more rooms are being added. In the cryptocurrency world, FDV is the estimated total value of a project if all its tokens — both currently available and those yet to be released — were sold on the open market.

It's calculated by taking the current token price and multiplying it by the total supply, including tokens that are locked, reserved for the future, or yet to be created.

Why Token Release Methods Matter

Many crypto projects release their tokens gradually through vesting periods, staking, or mining. For example:

So, while the circulating supply reflects tokens currently available, FDV considers the total supply that will eventually exist. This gives you a broader view of the project's future potential — but remember, future token prices can fluctuate.

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Did you know? Crypto tokens typically enter circulation through:

Each method impacts the supply differently!

Why FDV Matters for Crypto Investors

For investors, FDV is like considering the total cost of an item you're buying on a payment plan. When a project has a high FDV, it indicates that more tokens could eventually enter circulation, which might reduce the value of the tokens you currently hold. With a low market cap, this could make the project more accessible today.

However, if the FDV exceeds the current market cap, it might suggest that the project could end up being overvalued. Understanding FDV allows you to make better decisions by showing the total prospective value of your investment rather than just its current worth.

Let's simplify the terms:

Now, let's explore the difference between FDV and market cap with an example.

FDV vs. Market Cap: What’s the Difference?

FDV and market cap might seem similar, but they represent different concepts:

Example: Cryptocurrency XYZ

Imagine a new cryptocurrency called XYZ:

FDV Calculation:
FDV = Total supply × Current price per token
FDV = 1,000,000,000 × $0.50 = $500 million

Market Cap Calculation:
Market cap = Circulating supply × Current price per token
Market cap = 500,000,000 × $0.50 = $250 million

This shows that while the current market value is $250 million, the potential maximum value if all tokens were circulating would be $500 million.

Did you know? FDV is similar to fully diluted shares in traditional stock markets. If all convertible securities, options, and warrants were exercised, the total number of shares that would be issued is represented by this metric. It's often used to determine a business's fully diluted earnings per share (EPS), which provides a more detailed view of the company's profitability.

How FDV Is Calculated in Cryptocurrency

The formula for calculating FDV is straightforward:

FDV = Total token supply × Current token price

Using our XYZ example:
FDV = 1,000,000,000 tokens × $0.50/token = $500 million

The market cap is calculated using:

Market cap = Circulating supply × Current token price

In our example:
Market cap = 500,000,000 tokens × $0.50/token = $250 million

This is the value based on what's actually available for trading right now!

Interpreting Different FDV and Market Cap Scenarios

The relationship between FDV and market cap can reveal different investment scenarios:

  1. Low market cap, high FDV: The project's current valuation is low, but it could be much higher if all its tokens were sold. This might indicate a hidden gem for now, but watch out for potential value dilution in the future.
  2. High market cap, low FDV: The project's market value is high now, but its future potential is lower than its current value. This might suggest the project is overvalued or already priced for future growth.
  3. Low market cap, low FDV: The project's current value and future potential both appear unfavorable. It might be a new or struggling project with little chance of success.
  4. High market cap, high FDV: The project has strong current value and also high future potential value. This typically means it's well-established and growing, but ensure the high FDV doesn't lead to future dilution.

Real-World Examples

Which scenario is most common? High market cap and high FDV are typical for established projects with solid growth potential.

Bitcoin (as of historical data):

NEXO (ranked ~100th by CoinMarketCap historically):

Now comes the question: Is FDV a reliable measure of a cryptocurrency's true value? Let's find out.

Did you know? If a cryptocurrency's maximum supply is known, it's used in the FDV calculation to estimate the total potential value if all tokens were in circulation.

Risks of Relying on FDV in Cryptocurrency

Depending solely on FDV for crypto investments can be risky for several reasons. FDV provides a projection of a cryptocurrency's future value by estimating its total potential worth if all tokens were in circulation. However, this number can be misleading if other factors aren't considered.

Limitations of FDV

  1. Token release timing: FDV doesn't consider the actual token release schedule. Many projects have tokens that are vested or locked over time. If a significant portion of tokens isn't yet available, the project's value might be better represented by the current market capitalization.
  2. Price assumption: FDV assumes the token price will remain constant, which is highly unlikely in real markets. If more tokens enter circulation, the increased supply could cause price depreciation, affecting the actual FDV calculation.

  3. Market factors: FDV ignores elements that can affect a token's true value, such as:

    • Market competition
    • Regulatory changes
    • Ongoing project development
    • Overall market conditions
    • Technological advancements
  4. Value dilution risk: The issuance of additional tokens could decrease their value, potentially leading to a drop in token price.

Therefore, while FDV is a useful metric, it shouldn't be used in isolation. For complete investment decisions, investors should consider other factors like market capitalization, token release schedules, and the overall health of the project.

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Frequently Asked Questions

What does fully diluted valuation mean in crypto?

Fully Diluted Valuation (FDV) represents the theoretical market capitalization of a cryptocurrency if all its tokens were already issued and in circulation. It's calculated by multiplying the current token price by the total token supply that will ever exist.

How do you calculate fully diluted valuation?

FDV is calculated using this formula:
FDV = Total token supply × Current token price
For example, if a project has 10 million tokens total and each token is worth $2, the FDV would be $20 million.

Why is fully diluted valuation important?

FDV helps investors understand:

What is the difference between market cap and fully diluted valuation?

Market cap reflects the current value based on circulating supply, while FDV shows potential value based on total supply. Market cap tells you what the market values right now, while FDV indicates what it could be worth if all tokens were available.

Can FDV predict future token prices?

No, FDV cannot reliably predict future token prices. It's a theoretical calculation based on current prices and total supply. Actual future prices depend on market conditions, adoption, competition, and many other factors that FDV doesn't consider.

Should I avoid projects with high FDV?

Not necessarily. A high FDV isn't inherently bad—it depends on the project's fundamentals, growth potential, and token release schedule. However, projects with very high FDV relative to their market cap might carry higher dilution risks if not managed properly.

Conclusion

Fully Diluted Valuation is a valuable metric for cryptocurrency investors seeking to understand a project's total potential worth. By considering both circulating tokens and those yet to be released, FDV provides a more complete picture than market capitalization alone.

However, FDV has limitations. It doesn't account for future price changes, token release schedules, or market conditions. Smart investors use FDV alongside other metrics like market cap, trading volume, project fundamentals, and development activity to make informed decisions.

Remember that no single metric tells the whole story. Successful cryptocurrency investing requires comprehensive analysis of multiple factors to assess both current value and future potential accurately.