What Is Fully Diluted Valuation (FDV) In Crypto?

A Fully Diluted Valuation (FDV) is an important metric used by traders to value cryptocurrency projects and make informed investment decisions. It refers to a statistical representation of the maximum value of a cryptocurrency asset, assuming all of its tokens are already in circulation. 

As cryptocurrencies continue to gain more mainstream adoption, understanding concepts like FDV becomes important, especially in the case of long-term investors. In this article, we will explore what FDV is, how it works, why it matters, and how it can be used when analyzing your crypto investments. 

So, let’s get started. 

What is Fully Diluted Valuation (FDV)?

Fully diluted valuation refers to the total value of a cryptocurrency when all available tokens that can enter circulation are taken into account. This includes coins that are locked, reserved, or yet to be mined/minted. 

For example, if a token project has issued 10 million coins out of a maximum available supply of 100 million, then its FDV is considered to be the value of all 100 million tokens rather than just the 10 million that are in circulation. 

Why is FDV Important for Cryptocurrencies?

FDV is important for analyzing cryptocurrencies because it provides a more accurate representation of a token project’s valuation rather than simply looking at its market capitalization. 

FDV offers more insight into the growth potential and overall health of a cryptocurrency project by considering things like token schedules, reserves, burning mechanisms, etcetera. 

Here are a few reasons why FDV is important:

• Relying on market cap alone to analyze a crypto project could be misleading if the circulating supply is very different between assets. FDV creates a level field by making it easier to compare valuations across different projects. 

• The higher the FDV of a project, the more room to grow for it as more tokens will be entering circulation. If there is a big gap between the FDV and the market cap of a cryptocurrency, then it signals undervaluation. 

• FDV accounts for inflationary effects. While maximum supply factors in the future issuance of tokens, like devaluing existing coins, FDV gives a more accurate picture of the inflation that could set in. 

• FDV is critical for long-term investors because it gives a better sense of a cryptocurrency’s future valuation. This long-term view provided by the metric helps investors make informed decisions. 

• FDV helps investors analyze whether a project’s launch or presale is comparatively under or overvalued. This helps traders determine various investment strategies. 

How to Calculate Fully Diluted Valuation (FDV)?

Here are the steps involved in calculating the FDV of a cryptocurrency:

1. Identify a token’s key metrics such as its current market cap, maximum supply, and current circulating supply 

2. Use the formula: FDV = Current Market Cap x (Maximum Supply / Current Supply)

3. Find the above-mentioned data points by referring to websites like Coinmarketcap or Coingecko. 

4. Add the data and perform the calculation to find out the FDV

Let’s take an example: 

Say there is an ABC coin that is trading at $2 per token. It has a circulating supply of 25 million and a maximum supply of 100 million coins. To find the token’s market cap, we will do the following calculation:

Market Cap = Price x Circulating Supply 

Market Cap = $2 x 25 million = $50 million

Now let’s find out the FDV of ABC coin using the formula; FDV = Current Market Cap x (Maximum Supply / Current Supply)

FDV = $50 million x (100 million / 25 million) = $200 million

So, we have discovered that the market cap of ABC coin is $50 million, and the fully diluted valuation of all ABC that will ever exist is $200 million. 

How to Use FDV for Analyzing Crypto Investments?

Now that you understand what fully diluted valuation in crypto is and how it can be calculated, it is time to learn how you can use the metric to your advantage to make better crypto investments. 

• Always compare the FDV and market cap of a cryptocurrency. If the FDV is greater than the market cap, then the asset may be undervalued, and if the FDV is lower than the market cap, then the cryptocurrency may be overvalued.

• A higher FDV signals more room to grow for the coin’s value as more tokens enter circulation in the future. 

• Estimate the token’s future valuation by determining if the FDV represents fair value as the project matures, and how it compares to the valuation of similar projects. 

• Consider the factor that the number of circulating supply of a cryptocurrency changes from time to time. Check to see if the token lockups are expiring or will the minting/mining increase or decrease its future supply. 

• Use FDV to determine whether the launch or presale price of a given token is fair. Compare the FDV at launch to its current valuation. 

• Track the token’s dilution by comparing its FDV at launch to its current FDV. This is useful to gauge the effects inflation has on the coin. 

Conclusion

Fully diluted valuation (FDV) is a very useful tool for any crypto investor who is looking to build long-term wealth. While it is not the most perfect measure, integrating FDV analysis into your crypto research process can help you figure out key insights and understand valued opportunities. 

Just like any other market metric, FDV should also be considered when assessing a project’s fundamentals, community traction, and growth potential. While certain risks can remain, those who learn how to strategically analyze cryptocurrency projects will have an added advantage in the burgeoning space. 

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