What is FDV
Fully Diluted Valuation (FDV) is a financial metric used to gauge the total potential market capitalization of a cryptocurrency if all coins or tokens were to be issued. It is calculated by multiplying the max supply of tokens by the current price per token. The concept of FDV has become increasingly important in the cryptocurrency space, as it provides investors with a clearer picture of the long-term value of a project, especially in markets characterized by token inflation and vesting schedules.
The origin of FDV can be traced back to traditional finance, where similar metrics are used to evaluate the potential value of companies. In the context of cryptocurrencies, FDV allows investors to assess the risk and potential return of their investments more effectively. As the crypto market matures, understanding FDV has become crucial for making informed investment decisions.
What factors influence FDV?
Assets with Fixed Supply: Projects like Bitcoin have a capped supply (21 million BTC), making their FDV straightforward to calculate based on the current price.
Inflationary Assets: Some cryptocurrencies, such as Ethereum, have no maximum supply, leading to an evolving FDV as new tokens are minted.
Vesting Tokens: Tokens that are subject to vesting schedules like those in projects with team allocations and lock-up periods, such as Uniswap (UNI) can have an FDV that fluctuates based on how many tokens are currently in circulation versus those locked up for future release.
How do investors use FDV?
FDV is calculated using the following formula:
Current Price x Maximum Supply
This formula helps investors understand the potential market capitalization of a cryptocurrency project in the future. For example, if a cryptocurrency has a current price of $10 and a max supply of 1 million tokens, the FDV would be $10 million. This metric is particularly useful as it accounts for tokens that are not currently in circulation but will be released in the future.
Investors often use FDV in conjunction with other valuation metrics, such as Market Capitalization and Circulating Supply, to assess whether a cryptocurrency is overvalued or undervalued. A high FDV relative to the current market cap means that the market cap is currently undervalued, which could indicate that the project is poised for growth. At the same time, a low FDV compared to market capitalization is commonly interpreted as the market cap being overvalued, and it might suggest a lack of investor interest or potential issues with the project. It's worth remembering that FDV should be used with caution and in combination with other factors when evaluating a project's potential for growth.
