Fully Diluted Valuation (FDV) has become a key concept in the cryptocurrency space, as it allows estimation of a project's total value if all its tokens are in circulation. Let's explore why this metric is important for investors and how it differs from market capitalization.
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 considers the total supply. This makes it an essential tool for evaluating the scalability and growth of a crypto project.
Differences Between Fully Diluted Valuation and Market Cap
Market capitalization focuses on the current supply of tokens in circulation, while FDV looks at the full potential supply. For example, the current price of SUI is $2.18 with a circulating supply of 3.16B and a total supply of 10B tokens. This results in a market cap of $6.93B for SUI and an FDV of $21.87B.
Risks of Ignoring Fully Diluted Valuation
Overlooking 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, the influx could lead to price drops. Investors should always consider FDV alongside other factors like adoption, utility, and token distribution.
Fully Diluted Valuation provides a more comprehensive view of a crypto project's potential value. Considering its impact on long-term prospects, it should be an important part of any investor's analysis in the cryptocurrency sphere.
