Fully Diluted Valuation (FDV) is a key metric in the cryptocurrency space. It estimates the total value of a crypto project if all its tokens were circulating, providing a broader perspective of its market value.
Why FDV Matters
FDV helps investors gauge the long-term potential of a cryptocurrency. Unlike market capitalization, which reflects only the value of circulating tokens, FDV considers the total supply. This is essential for evaluating the scalability and growth of a crypto project and highlights potential risks or rewards tied to future supply changes.
Differences Between FDV and Market Cap
Market capitalization is calculated by multiplying the current price of a token by the number of tokens in circulation. It estimates the project's present value based on actively traded tokens but does not account for future token releases that could affect supply and price. FDV, on the other hand, is based on the total supply of tokens, including those set aside for future distribution. For example, with SUI's current price at $2.18 and its circulating and total supply being 3.16B and 10B tokens respectively, its market cap is $6.93B, while the FDV is $21.87B.
Advantages and Risks of FDV for Investors
FDV provides insights into the long-term prospects of a token, allowing investors to assess whether a project is overvalued or undervalued relative to its total supply. High FDV with limited utility might indicate overvaluation, whereas low FDV with strong fundamentals could signal growth opportunities. Monitoring changes in token supply is crucial, as additional token releases can increase FDV, potentially diluting the value of existing tokens.
Ignoring FDV can lead to poor investment decisions. A project with a low market cap but a high FDV might seem undervalued. However, if a significant number of tokens are yet to be unlocked, an influx could lead to price drops. Investors should consider FDV alongside other factors like adoption, utility, and token distribution to make informed decisions.
