What is a Fully Diluted Valuation (FDV) in crypto?
Fully Diluted Valuation (FDV) is a metric used to estimate the future potential of a cryptocurrency project.
FDV is calculated by multiplying the token price by the total supply, giving an estimate of the cryptocurrency's market cap when all tokens are in circulation.
Understanding FDV can help individuals make more informed decisions about their asset allocations.
What is Fully Diluted Valuation (FDV)?
Fully Diluted Valuation (FDV) is a measure of the total value of a cryptocurrency project, assuming all of its tokens are in circulation. It's a statistical representation of the maximum value of a cryptocurrency project, providing individuals with a view of the project beyond the given point.
The total supply of tokens may change due to the minting of new tokens, or due to token burning, which removes tokens from circulation.
How is FDV calculated?
FDV is calculated using the formula Token Price X Total Supply. This calculation gives an estimate of the cryptocurrency's market cap when all tokens are in circulation.
For example, if there is a circulating supply of 10,000 tokens of a certain cryptocurrency, and each has a value of $1, then the market cap for this cryptocurrency is $10,000.
However, if this cryptocurrency has a maximum supply of 1 million tokens, its FDV will be $1 million.
Why is FDV important?
FDV is a data point for individuals to consider as it provides a broader view of a cryptocurrency project's potential value.
An increasing token supply might offset the demand and supply conditions. When the supply increases against an unchanged demand, a decrease in price per token could occur as a result of new tokens diluting the total market cap.
Therefore, understanding FDV can help individuals stay ahead of this situation and make more informed decisions about their asset allocations.
FDV in the context of traditional trading
The concept of FDV can also be applied to traditional trading or stock markets.
The fully diluted value of a company is the amount you would pay if you bought all outstanding stock, plus all stock that could potentially be issued, such as options and convertible debt.
Fully diluted value is a data point for individuals to know because it gives them a picture of the potential future of the company, helping them assess whether the asset allocation is favorable.
Limitations of FDV
While FDV is a metric, it's crucial to note that it has its limitations.
FDV is an estimate of an asset's future price, and like all estimates, it's not guaranteed to be accurate. It should be used in conjunction with other metrics for a broader analysis of a cryptocurrency project's potential. And, the total supply of tokens can change due to various factors, which can affect the FDV.
Therefore, individuals should conduct their own research and consider multiple factors when making financial decisions.
