Understanding FDV: Fully Diluted Valuation

FDV is one of the terms to know when you want to invest in cryptocurrencies, just like MarketCap.

There are in fact a certain number of metrics carefully observed by crypto investors to better understand tokenomics of a crypto and better yet, determine its future price.

Among the metrics we look at, there is of course the market cap, trading volume, circulating supply, maximum bid etc. Another factor taken into account nowadays is the famous FDV (fully diluted valuation)

It's certainly a term that's rarely used, but you'll be surprised by its importance. And if you want to enter the big leagues, this metric is essential. However, you will see that alone, it loses its importance...

What is FDV (Fully Diluted Valuation)

The FDV can be defined as the market capitalization of the project once the maximum number of tokens has been fully issued by the development team. To put it another way, the FDV makes it possible to calculate the future market capitalization of a project. This is the market cap of the token calculated with the price of the current token. This is important to note. As a reminder, we can remember that the FDV is the future market capitalization.

This is usually where you think, “Wow, how did I miss that!”

The other good thing to know is that sites like Coinmarketcap or Coingecko show us this metric!

Thus, the FDV is calculated like this:

FDV = Maximum supply of a token X Current market price of the token or in French, FDV = Maximum supply of a token X Current market price of the token.

Ultimately, the FDV is very close to the market cap, isn't it? Wondering how it's different?

The difference between MarketCap and FDV?

To calculate the market cap, we multiply the current price of the token with its circulating token supply.

Remember that market capitalization is calculated like this: Circulating supply of a token

How much should we rely on FDV to invest?

This is certainly an excellent metric but the problem with FDV is that it does not take into account the possible drop in the price of a token with the possible increase in tokens in circulation.

Indeed, according to the law of supply and demand, the more tokens issued, the less value the token has.

Let's take an example to better understand what we're talking about.

We take the example of a token (called LO) which costs $100 with a circulating supply of 10 tokens and a maximum supply of 20 tokens.
Thus the market cap of LO: 10 x100 = $1000
For the FDV, the calculation gives instead 20 x 100 = $2000

In our example, This is obvious as FDV does not assume that the supply of additional tokens on the market will not affect its price on the market. For the FDV, theoretically, the FDV always offers a market capitalization which increases proportionally with the circulating supply.

However, we know well that even if the scenario of perpetual increase is verified with numerous projects, nothing is less certain...

Indeed, several factors can increase or decrease the price of a crypto such as, for example, future developments of the project, team changes, the relevance of the product at the time T, the arrival of competitors, etc.

All of this has an even greater impact on the price of a crypto and of course, these are elements that cannot be "calculated" and even worse, cannot be guessed.

Final word on considering FVD for investing

For me, the FVD metric is certainly important for planning ahead, but I don't forget that it is not a very reliable metric for evaluating a project, in connection with the market cap.

However, and this is what is interesting, by considering the FDV and other metrics, we can sharpen our gaze to find future gems.

If this appeals to you, stay tuned 😉