In the world of cryptocurrencies and investment, it is crucial to understand the key concepts surrounding this market. One such concept is Fully Diluted Value (FDV), which plays a key role in the evaluation of projects and companies. In this article, we will explore in detail what FDV is, how it is calculated and why it is important for investors.
What is Fully Diluted Value (FDV)?
Fully Diluted Value (FDV) is the total value or market capitalization of a cryptocurrency if the entire supply of tokens were in circulation. In other words, it represents the maximum capitalization that a cryptocurrency could achieve if all available tokens were put into circulation at the current price.
When investors consider an investment in a company or project that has its own asset, it is important to consider the fully diluted valuation. This is because it provides a metric for understanding the tokenomics of a project and assessing its short, medium and long-term growth potential.
How is Fully Diluted Value calculated?
Calculating the Fully Diluted Value of a cryptocurrency requires two key elements: the total supply of the coin and the price per coin. By multiplying these two values, we get the FDV.
For example, if a cryptocurrency has a total supply of 1 million tokens and each token is worth $1, the FDV of that asset would be $1 million.
It is important to note that the total supply of a cryptocurrency includes tokens that are not yet in circulation. When considering FDV, it is useful to think about what would happen if all of these tokens were released into circulation simultaneously at the current market price.
FDV versus Market Cap (MCap)
It is important to distinguish between Fully Diluted Value and Market Cap. While FDV represents the theoretical maximum market cap of a cryptocurrency taking into account all tokens (issued and to be issued), Market Cap is calculated by multiplying the current price per coin by the circulating supply.
For example, if there is a circulating supply of 10,000 tokens of cryptocurrency X, and each is worth $1, then the market capitalization of X would be $10,000.
Importance of Fully Diluted Value for Investors
Fully Diluted Value is an important metric for investors to consider when evaluating an investment in cryptocurrencies or projects. It provides a complete picture of a cryptocurrency’s growth potential by considering its total supply and its price per coin.
The greater the difference between the current market capitalization and its FDV, the more risk there is in holding that investment over the long term, due to the inflation that asset has, as it increases the risks of the price being diluted over time as the remaining tokens come into circulation.
By calculating the FDV, investors can get an idea of what the price per share or token would be if they bought today and everything else remained unchanged. This allows them to evaluate whether the investment is favorable and to see what future market capitalization the project would need to maintain the current price. That is when the investor assesses whether it is viable or unrealistic.