Fully Diluted Valuation (FDV) measures the total market value of a cryptocurrency, assuming that all possible tokens or coins exist in circulation. In simpler terms, FDV represents the maximum value of the cryptocurrency if every token were issued and available in the market. These could include all the tokens and coins that are locked, staked, or yet to be issued for investing.
For example, if a cryptocurrency project has issued over 10 million tokens from an overall supply of 100 million, the FDV tends to calculate the value of 100 million tokens rather than considering only the ones that are issued.
FDV helps investors stay ahead of the market situation. As more tokens are introduced into the market, the value of the individual token starts to decrease. FDV helps investors stay ahead and identify such situations to avoid future risks. The total supply of tokens may vary for different types of cryptocurrencies. This could be due to various reasons that remove the token from circulation.
FDV is calculated using the following formula:
- FDV = Price of the token x Total Maximum Supply
For instance, if the price of the token is $2 and the total maximum supply of the crypto project is 2 billion, the FDV would be $4 billion.
Why Should Investors Consider FDV?
- Indicates Potential Growth: FDV helps to calculate the potential growth of a crypto project. A high FDV shows that the project has more space to circulate more tokens. Investors can find out the potential of a cryptocurrency with the help of FDV.
- Identifies Inflation: As the supply of the tokens increases, the value of the individual token decreases. This could lead to inflation, which can impact the investing process. FDV helps to identify and prevent inflation by keeping track of the supply of the tokens.
- Essential For Long-Term Investing: FDV helps investors by providing them with a future valuation, which is essential for the long-term investing process. It helps the investors to stay ahead and make appropriate decisions.
- Assesses Launch: FDV analyzes whether the project presale is undervalued compared to the FDV at launch. This helps the investors determine their trading strategy.
How Is FDV Different From Market Capitalization?
FDV and market capitalizations are often confused to be the same in most cases. Even though both of them share some similarities, they are fundamentally different from each other. FDV represents the total value of the crypto project if all tokens in circulation are considered as well.
The market cap represents the value of the tokens in circulation and the price of each token. At first glance, FDV and market cap may appear similar, but they represent completely different mathematical equations.
The mathematical equation of market cap is as follows:
- Market cap = Price of the token x Circulating Supply
Another major difference between FDV and market cap lies in the time factor. FDV represents the expected or future value, while market cap shows the current value of the crypto project. Both metrics are useful and provide valuable insights into the crypto project.
Risk Factors Associated With FDV
Even though FDV is a crucial factor in crypto investing, being a metric it has certain limitations. FDV represents the value of the future prices rather than the current prices. These prices are not guaranteed to be accurate all the time. They are merely estimates.
FDV also assumes the prices of the crypto tokens to stay constant. This assumption will lead to potential risk factors. Supposedly the price decreases due to certain reasons; it will affect the overall calculation of FDV. FDV also tends to ignore many important elements like market competition and legislative changes that are crucial in deciding the potential of a crypto project.
Final Thoughts
FDA serves as an important tool in cryptocurrency that helps investors stay aware of the price situations and various other factors. It is an essential tool for those investors who are aiming for long-term investment experience. FDV provides a more balanced and strategic representation of the cryptocurrency project.
However, investors should consider the limitations of FDV. As crypto investing is a complex process, they should be aware of all the factors affecting the investing process. Investors are always advised to do deep research about all the necessary resources before completely depending on FDV for making investment decisions.
