What is Fully Diluted Valuation (FDV) in Cryptocurrency?
Fully Diluted Valuation (FDV) is the projected market value of a cryptocurrency if all possible tokens were in circulation. It includes not only the tokens currently in circulation but also those that could be released in the future, up to the maximum supply.
Unlike regular market capitalization, which only accounts for the existing supply, FDV gives a broader view of a project’s potential market cap and helps investors anticipate the effects of future token releases.
How to Calculate FDV?
The formula for calculating FDV is straightforward:
FDV = Maximum Supply × Current Price of the Token
For example, if a token has a maximum supply of 1 billion and is currently priced at $10, the FDV would be:
1,000,000,000 × 10=$10 billion
This calculation provides insights into what the market valuation would look like if all tokens were actively traded, offering a more expansive view of the asset's potential.
Importance of FDV in the Crypto Market
Understanding FDV is important because it helps investors gauge the long-term valuation potential of a crypto project.
Here's why it matters:
Comprehensive Valuation: By including unissued tokens, FDV presents a more holistic view of a cryptocurrency's potential worth and future capabilities.
Investor Awareness: Potential investors can better understand market dynamics and how much their holdings might dilute in the future as new tokens are issued.
Risk Assessment: Projects with a high current market cap but disproportionately high FDV might face inflation pressure, potentially affecting the price if new tokens flood the market.
Fully Diluted Valuation (FDV) vs Market Capitalization
While both metrics are crucial for evaluating projects, they serve different purposes:
Market Capitalization reflects the current value based on the presently circulating supply of tokens.
FDV, on the other hand, is speculative, projecting the valuation based on potential total circulation.
This means for investors, FDV highlights possible future scenarios, while market capitalization is more rooted in the present circumstances.
Limitations of Fully Diluted Valuation (FDV)
FDV is a useful metric for assessing a project's future potential, but it has key limitations that investors should keep in mind:
Ignores Current Supply: FDV doesn’t reflect the actual circulating supply, which can lead to overestimation of a token's current value.
Assumes Constant Price: It presumes all tokens would be sold at the current market price—an unlikely scenario if large volumes enter circulation.
Misses Market Context: FDV doesn't account for shifting market conditions, investor sentiment, or upcoming project developments that could impact valuation.
Token Unlock Risks: In projects with scheduled token releases or vesting periods, FDV doesn’t reflect the potential price pressure from those future events.
For a clearer investment picture, FDV should be used alongside other indicators like circulating market cap, tokenomics, and project fundamentals.
