Fully diluted valuation (FDV) is a crucial metric in the cryptocurrency space. It estimates the total value of a crypto project if all its tokens were in circulation.
The Importance of Fully Diluted Valuation
FDV helps investors gauge the long-term potential of a cryptocurrency. Unlike market capitalization, which only reflects the value of circulating tokens, FDV takes into account the total supply. This makes it an essential tool for evaluating the scalability and growth of a crypto project. For example, if a large portion of tokens is yet to be released, FDV can highlight potential risks or rewards tied to future supply changes.
Differences Between FDV and Market Cap
While market capitalization focuses on the current supply of tokens in circulation, FDV looks at the full potential supply. Here's a simple comparison: Market Cap = Current Price × Circulating Supply, FDV = Current Price × Total Supply. Market capitalization is one of the most commonly used metrics to assess the value of a cryptocurrency, its drawback is that it does not account for future token releases that could affect supply and price. Total supply refers to the number of tokens that exist within a cryptocurrency project, including those currently in circulation and those set aside for future distribution.
How FDV Influences Investment Decisions
FDV provides insights into the long-term prospects of a token. It allows investors to assess whether a project is overvalued or undervalued relative to its total supply. For instance, if a project has a high FDV but limited utility or adoption, it may signal overvaluation. On the other hand, a low FDV with strong fundamentals could indicate an opportunity for growth. It's important to understand that changes in token supply directly impact FDV. If additional tokens are released into circulation, the FDV increases, which could dilute the value of existing tokens. Ignoring FDV can lead to poor investment decisions.
Staying informed about metrics like FDV helps you make better decisions in the ever-dynamic cryptocurrency market. Whether you're an experienced trader or a beginner, taking a closer look at FDV can provide a clearer picture of a project's potential.
