Anyone who has dealt with Cryptos must be likely familiar with the concept of “market capitalization.” Market cap refers to the total value of a project’s coins that are presently in circulation. For instance, the market capitalization of Bitcoin as of 5th April is about $552 billion. The community can determine the project’s current size with the help of its market capitalization.

What if we try to predict the future success of a Crypto project? A Fully Diluted Market Cap or Fully Diluted Value (FDV) is one simple indicator that could prove useful in this circumstance. FDV isn’t a metric that analysts use very frequently, but it can offer some useful insights about a Crypto’s future. So, stay with us till the end as we explain the Fully Diluted Market Cap (FDV) and its pros and cons.

About Fully Diluted Market Cap (FDV)

The Fully Diluted Market Cap, also referred to as Fully Diluted Valuation (FDV), is the value of a token’s market cap after all of its tokens have been completely mined or released.

The FDV metric assists investors in determining whether the Crypto’s current price will sustain going forward or whether it is currently trading above its ideal value.

FDV is only one component of the equation used to assess the total risk and value of buying Cryptos.

A Fully Diluted Market Cap (FDV) is an estimate of what the market cap will be once all the tokens in a project are in circulation, which should not be confused with the market cap or the circulating supply. In other words, you are simply predicting the Crypto’s potential market cap.

Fully Diluted Value (FDV) = Maximum supply of a token x Current market price

Simply multiply the token’s value by the total token supply to determine a Crypto’s market capitalization when all of its tokens have been issued.

For instance, if there were 100,000 total tokens in the project and each token cost $5.00, the Fully Diluted Market Cap will be $500,000 after multiplying 100,000 tokens by $5.00.

People usually confuse Fully Diluted Market Value with market cap, but there’s a major difference between them. Let’s find out in the following section.

Fully Diluted Market Value Vs. Market Cap

Market cap is significantly different from a Fully Diluted Market Cap. Although the phrase “market cap” is frequently used, it is not beneficial when analyzing a coin’s future potential. By multiplying the current number of coins by the price per coin, the size and popularity of a Crypto can be determined.

The primary difference between a market cap and a Fully Diluted Market Cap is that a market cap does not predict how the popularity of a Crypto will change as it grows. Once all of the coins have been released, you can determine the popularity of the Crypto with the help of a Fully Diluted Market Cap. By taking the time to determine a Crypto’s Fully Diluted Valuation, you can speculate on the coin’s potential future value.

Furthermore, combining FDV Crypto metrics with traditional market cap provides a wealth of information about a coin’s present valuation. The gap between the market cap and the Fully Diluted Market Cap ought to be relatively small. However, there will be strong inflationary pressure when there is a substantial difference as new coins are issued. This may signal that a coin’s present value is overinflated.

Pros and cons of Fully Diluted Market Cap (FDV)

PROS

• More accurate representation: FDV provides a more accurate representation of a company’s value since it considers all shares that could be issued in the future. This is especially crucial for companies that have a large number of outstanding options, warrants, and convertible securities.
• Comprehensive measurement: FDV provides a comprehensive measurement of a company’s potential market value. It includes all shares that could potentially be issued in the future, which can help investors understand the full scope of a company’s market capitalization.

CONS

• Complexity: FDV can be a complex metric to calculate and understand, especially for novice investors. The calculation involves estimating the potential number of shares that could be issued in the future, which can be challenging.
• Overestimation: FDV can also lead to overestimating a company’s value since it includes shares that may never be issued. For example, if a company has outstanding options that are unlikely to be exercised, including them in the FDV calculation can inflate the company’s market capitalization.
• Market volatility: FDV can be affected by market volatility. If a company’s stock price falls significantly, the FDV will also decrease, which can make the company appear less valuable than it actually is.

Final thoughts: Can FDV be considered a good valuation metric?

You can utilize Fully Diluted Valuation differently. Not every method will work with Cryptos. However, this valuation can be helpful when deciding whether to invest in a fresh, little-known project. The project has a good chance of success if FDV is significantly higher than the present market capitalization and inflation-provoking tokenomics.

Before you buy the new token, if you get proficient at performing this analysis, FDV can greatly assist you. We can categorically state that this metric is good. The prediction becomes more accurate the more analytical tools you use. Choose wisely!

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn't represent any investment advice or WazirX's official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.