Fully Diluted Valuation (FDV) is a crucial metric in the cryptocurrency space that estimates a project's value if all its tokens were circulating.
Why FDV Matters
FDV helps investors gauge the long-term potential of a cryptocurrency. Unlike market capitalization, which reflects the value of circulating tokens, FDV considers the total supply. This makes it an essential tool for evaluating a project's scalability and growth. For instance, if a large portion of tokens is unreleased, FDV can highlight potential risks or rewards tied to future supply changes.
How FDV Differs from Market Cap
While market capitalization focuses on the current supply of tokens in circulation, FDV looks at the full potential supply. Market capitalization is calculated by multiplying a token's current price by its circulating supply. This provides an estimate of the project's present value based on actively traded tokens but does not account for future token releases that might affect supply and price. On the other hand, FDV multiplies the current price by the total supply, including reserved tokens.
Why Some Investors Prefer FDV
FDV provides insights into a token's long-term prospects. It helps investors assess whether a project is overvalued or undervalued relative to its total supply. For example, a high FDV but limited utility or adoption might signal overvaluation. Conversely, a low FDV with strong fundamentals could indicate growth potential.
Ignoring FDV can lead to poor investment decisions. Projects with low market cap but high FDV might appear undervalued at first glance. However, a large token release could lead to price drops. Investors should always consider FDV alongside factors like adoption, utility, and token distribution.
