Fully Diluted Valuation (FDV) is an important statistic for appraising bitcoin projects. It allows you to estimate a project’s complete potential worth by assuming that all tokens, circulating and non-circulating, are available on the market. In this essay, we will look into FDV, its computation, importance, and limitations.
What Is FDV?
FDV is an estimate of a cryptocurrency’s total value if all tokens, including those that are locked or yet to be issued, were available today. Unlike market capitalization, which only shows the value of tokens that are currently in circulation, it gives a more comprehensive picture of a project’s greatest potential worth.
Consider FDV as the purchase of a home that is still being built. Even though you can only see a portion of it now, you are aware that more rooms are being constructed. Within the cryptocurrency space, FDV represents the project’s total estimated value if all of its tokens, both those that have already been released and those that are still pending, were sold on the open market. It is calculated by taking the total supply—which includes uncreated, locked, and future-reserved tokens—and multiplying it by the token price as of right now.
How To Calculate FDV
The formula for calculating FDV is straightforward:
- FDV = Current token price × Total supply
For example, if a token has a total supply of 1 billion and each token is priced at $0.25, then the FDV would be:
- FDV = 1 billion × $0.25 = $250 million
See Related: Bitcoin Overtakes The Russian Ruble In Value
Market Cap vs. FDV
- Market Cap: Represents the value of circulating tokens.
- FDV: Represents the potential value if all tokens were available.
Example:
Let’s say a cryptocurrency, XYZ, has a circulating supply of 500 million tokens and a total supply of 1 billion. If each token is valued at $0.10,
- Market Cap = 500 million × $0.10 = $50 million
- FDV = 1 billion × $0.10 = $100 million
While market capitalization focuses on current market value, FDV forecasts the cryptocurrency’s future total value.
Why FDV Matters For Investors
FDV helps investors understand a project’s maximum potential and assess its future growth. However, there are several key factors to consider:
- High FDV: This suggests future growth potential, but it may also signal a risk of token dilution as more tokens enter circulation.
- Low FDV: A low FDV relative to market capitalization may imply overvaluation in the present market.
FDV can act as a warning sign, helping investors determine whether a project may be overpriced or undervalued based on the future token supply.
Risks Of Relying On FDV
- Token Release Schedules: FDV doesn’t account for when new tokens will be released. Many projects release tokens gradually through vesting, staking, or mining, which can dilute the value of tokens already in circulation.
- Price Fluctuations: FDV assumes the current token price will remain constant, which is unlikely in a volatile crypto market.
- External Factors: FDV ignores other important factors such as regulatory changes, market competition, and project development, all of which can impact a cryptocurrency’s value.
Conclusion
FDV is a useful method for assessing the long-term feasibility of cryptocurrency projects. It shouldn’t, however, be the exclusive metric used to choose investments. Investors should consider market capitalization, token distribution schedules, and the project’s general health in order to conduct a complete analysis.
