One of the tools you can use to assess crypto is fully diluted valuation (FDV). This concept might seem intimidating when you are new to cryptocurrency trading strategies. Yet once you understand what FDV is in crypto, you will be able to use it with confidence.
Today, we will explore this crypto measurement and explain how you can use its formula and interpret its results. We will also reveal the risks that come with using fully diluted valuation. Then, we will give you the tools you need to better assess the crypto market.
What Is FDV in Crypto?
Fully diluted valuation is a measurement of the total value of a crypto project based on its current price. It considers all of the tokens that are in circulation in the market and the other tokens that are unreleased or vested.
You can calculate a fully diluted valuation with the following formula:
Fully Diluted Valuation = Current Price x Total Supply
For example, let us calculate Ethereum’s fully diluted valuation. According to reports, the current price of Ethereum is $3,192.6. Meanwhile, reports indicate that it has a total supply of 120.36 million. Therefore, it has a fully diluted valuation of around $384.3 billion:
3192.6 x 120,360,000 = 384,261,336,000
The Importance of FDV in Crypto
Before you buy cryptocurrencies, you need to know if it will be profitable. With a fully diluted valuation, you can estimate the value of this project.
In addition, you can compare this valuation to the currently circulating supply to know whether its future releases will devalue your crypto. This is because when you buy crypto, it has a specific price, yet its value can change.
When more crypto enters the market, its price is likely to drop. So, if the circulating supply is very low compared to the total supply, devaluation is more likely and vice versa.
Plus, when you pair this with market capitalisation, you can estimate whether this crypto is undervalued or overvalued.
The Limitations of FDV Crypto
Although fully diluted valuation has been used, it can lead to misleading results if you use it alone. This is because it assumes that the price will not change. Yet even with a successful cryptocurrency such as Bitcoin, its price went from $80,474.19 to $90,584.16 in the space of 3 days according to reports.
Moreover, a fully diluted valuation does not consider vested, locked, or burned tokens, which will affect the number of tokens circulating the market.
FDV vs Market Cap
Market capitalisation is the present value of a crypto project. It uses the price and the current supply of a crypto that is circulating the market.
Market Capitalization = Token Price x Circulating Supply
Therefore, market capitalisation gives an overview of the current status of a crypto project while fully diluted valuation estimates its future value.
How to Interpret FDV and Market Capitalisation
Interestingly, you can use market capitalisation and fully diluted valuation to estimate its future growth potential. The following table compares their results to interpret a crypto project’s future:
| High Fully Diluted Valuation | Low Fully Diluted Valuation | |
|---|---|---|
| High Market Capitalisation | The crypto project has a strong current value and potential. There is a risk of future dilution. | The crypto project has a high value but a small growth potential. There is a risk of overvaluation. |
| Low Market Capitalization | The crypto project has potential but is also at risk of value dilution. | The crypto project has low potential. There is a risk it will struggle in the future. |
CryptoCracker Offers the Best Crypto Assessments
The fully diluted valuation, or FDV, is important, but it does not tell you everything about a crypto project. It is better to look at several factors to really understand what you are investing in. Our crypto platform, CrackCracker is perfect for this! It helps you see the big picture by adding more information to your FDV calculations.
On our website, you can easily see what is happening in the market. Our tools analyse data in real-time, so you always have the latest information. Plus, we have a special tool that recommends the best cryptocurrencies to invest in.
With CryptoCracker, you have everything you need to step into the crypto world confidently.
The Bottom Line
In short, the FDV in crypto is a measurement of a crypto’s total value. It considers the total supply and the current price. When you compare it to the current value of a project, you can estimate whether it is overvalued and if it has future potential.
However, fully diluted valuation is a simplistic measurement. It does not consider the change in price or whether a project decides to keep some tokens out of circulation.
Therefore, we recommend using this metric in conjunction with other measurements and tools, such as CryptoCracker to gain a holistic and accurate understanding of the market and invest more safely.
Frequently Asked Questions
Is a high FDV good?
A high FDV is neither good nor bad. Generally, high fully diluted valuation indicates a potential to grow. Nevertheless, if it is paired with a low market capitalisation, it might be struggling. Additionally, fully diluted valuation does not take into consideration unpredictable factors which would affect the actual future value of a crypto project.
What is a good FDV ratio?
A good FDV ratio is 2:3 of unreleased tokens to released ones. So, when a crypto project has 60% of its tokens in circulation, it has sufficient potential growth. However, you should consider other factors, such as investor sentiment, price history, and team experience, to judge a crypto project.
How to calculate the price from FDV?
To calculate the price from the FDV, you should use the formula: Fully Diluted Valuation / Total Supply = Current Price. Still, you should consider that the current price changes every day. Therefore, unless you use a recently calculated, fully diluted valuation, the price will not be up-to-date.