What is FDV in Crypto, Calculation, Pros & Cons: {Complete Guide}

In this article, we will learn what is FDV in crypto, its key points, how to calculate FDV, the negative aspects of FDV, and its Pros and Cons. The expanded form of FDV is Fully Diluted Valuation.

What is FDV?

A token’s FDV is the market cap of the token once all tokens are in circulation. It helps you estimate a project’s future market cap.

When a cryptocurrency either has an unlimited supply or has distributed all of its tokens, its FDV will be the same as its market cap.

In simple words, FDV represents the entire value of a cryptocurrency project, taking into account all of its circulating tokens. Thus, Investors can use it to assess the project’s future potential.

Key Points of FDV

• FDV shows the total value of a cryptocurrency project when all its tokens are in circulation.
• Changes in the total token supply can occur due to the creation of new tokens or the removal of tokens (token burning).
• You can calculate FDV using this formula: Token Price x Total Supply.

Is FDV a Trustworthy Valuation Metric?

You have the flexibility to apply fully diluted valuation in various ways. However, not all of these approaches are beneficial in the world of cryptocurrencies.

Nevertheless, this valuation can be a valuable tool when deciding whether to invest in a new, lesser-known project.

If the FDV significantly exceeds the current market capitalization and if the project’s tokenomics could potentially cause inflation, then the project is unlikely to succeed.

How to Calculate FDV?

To find a crypto’s market value when all its tokens are out, just take the number of tokens they have and multiply it by the price of each token.

FDV = Token Price x Total Supply

For example, if there are 200,000 tokens in a project and each token costs $10, the fully diluted market value will be $2,000,000.

The total supply includes the tokens that are already in circulation and the tokens awaiting distribution.

In simple terms, it’s the complete number of coins that exist for the cryptocurrency. You can compare this to how many shares a company can sell in the stock market. The Fully Diluted Valuation tells us how much the cryptocurrency could be worth if all its tokens are in use.

Difference Between FDV and Market Cap

People often mix up Fully Diluted Market Value with Market cap, but there’s a significant distinction between the two.

Now, let’s examine the mathematical distinctions between market cap and FDV:

• FDV = Token Price x Total Supply
• Market Cap = Token Price x Circulating Supply

Term	Market Cap	Fully Diluted Market Cap
Definition	It’s a common term, but it doesn’t help predict a coin’s future. It’s found by multiplying the current number of coins by their price, showing a cryptocurrency’s current size and popularity.	A fully diluted market cap looks into the cryptocurrency’s potential future popularity once all coins are out there.
Insight	Market cap reflects the current state of a cryptocurrency.	By using fully diluted crypto metrics alongside a standard market cap, you gain a better understanding of a coin’s current value.
Comparing Values	By using fully diluted crypto metrics alongside standard market cap, you gain a better understanding of a coin’s current value.	Ideally, the difference between market cap and fully diluted market cap should be relatively small. A large difference suggests there may be significant inflationary pressure as new coins are introduced. This could indicate an overinflated current value of the coin.

Negative Aspects of High FDV

Ideally, the gap between a project’s market cap and its FDV should be quite small. If there’s a big difference, it might signal that the coin’s current value is too high. As a general rule, if the FDV is more than ten times a token’s current market cap. It can raise two issues.

• Inflationary Tokenomics:
  When the fully diluted value is high, it means people are paying a lot for the coins currently available. But if more coins are introduced, the supply increases, and unless there’s strong demand, the coin’s value can drop.
• High Sell Pressure:
  A high FDV can also create more selling pressure. If the FDV metric gains popularity, investors may view a high FDV as a bad sign, thinking the token is overpriced. This often prompts token owners to sell, leading to price declines.

Pros and Cons of FDV

Pros

• More Accurate Information:
  FDV represents a more accurate picture of a company’s value by factoring in potential future share issuance. So, this is crucial for firms with many outstanding options and convertible securities.
• Depth assessment:
  FDV provides an depth assessment of a company’s potential market value. Additionally, it considers all the shares that will be issued in the future. As a result, this can help investors to understand the complete extent of a company’s market value.
  

Cons

• Overvaluation:
  FDV can make a company seem more valuable than it really is. Because it includes shares that may never be used. For example, unused options in the FDV calculation can make a company’s market value high.
• Market Uncertainty:
  Market volatility can impact FDV. If a company’s stock price drops substantially, the FDV will decrease too. however, potentially making the company seem less valuable than it truly is.

Final Words

Ultimately, the FDV crypto metric acts as a valuable tool for identifying potential overpricing in a coin. High FDV often signals potential inflation risks for a coin down the road.

Nonetheless, it’s crucial to remember that the fully diluted market cap is just one aspect. You should also consider factors like price trends, industry enthusiasm, and upcoming project advancements.

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