Before you buy a coin, you must thoroughly evaluate several metrics in tokenomics to make long-term gains in crypto trading. As a long-term holder, you want to know if your potential investment can yield up to 10x in profits.
During your research, you will encounter price, demand, supply, Market capitalization, and trading volume as metrics to check. However, there is another less-talked metric that helps in price prediction.
Our topic today is the fully diluted valuation (FDV) in crypto. We will look at what it is, its importance, and how it compares to market capitalization (MCap). We will highlight the factors influencing FDV in crypto and the benefits or drawbacks of using it as a price prediction tool.
What is Fully Diluted Valuation (FDV)
For you to have a full understanding of FDV, there are some metrics you must know and how they affect each other, and they are;
- Price: This is the cost or value of one unit of a coin at a time.
- Supply: The total number of units of a cryptocurrency that exist or are available in the market.
- Demand: This is the amount of people that want to buy a coin at that time.
- Total supply: The maximum number of coins or tokens that will ever exist. (For example, the total supply of Bitcoin is 21 million.)
- Circulating supply: Coins or tokens that are currently available for trading. For Bitcoin, its current circulating supply is 19,820,890
- Market capitalization: This is the total market value of a coin’s circulating supply.
- Trading volume: This is the total value of cryptocurrency transactions within a given timeframe. It is measured in dollars, and timeframes vary from 24 hours to 3 days, one week, one month, 6 months, and a year.
Fully diluted valuation is the total value of a cryptocurrency when every unit of it is in circulation. If a token has a maximum supply of 500 tokens and the price of one token is $10, then its fully diluted value today would be $5,000.
How do these metrics interact with each other?
- Price: The price of a coin is affected by supply and demand. High supply with low demand will lead to a drop in price. High demand with low supply will lead to a rise in price.
- Total supply and Circulating supply: These are known figures already set by the coin developers.
- Market Capitalization: Current Price x Circulating Supply. If a cryptocurrency has a circulating supply of 10 million tokens and each token is worth $5, the market cap would be $50 million.
- Fully Diluted Value: Current Price x Total Supply. This helps you determine if a coin will yield a lot of profit in the coming days.
Note: The total supply is affected by either burning or mining/ minting new tokens.
Why is FDV Important?
The main role of FDV plays is to help you assess the true potential value of a crypto project before you invest in it. How? This is done by giving you a possible price value of a coin when all of it has been released into the market. With the knowledge of FDV, you know when to enter or exit or totally avoid some crypto projects.
FDV shows you the possible risks of price dilution in the future. When a project has a high FDV but a low market cap, it means more tokens are waiting to be supplied, and if it does not meet a high demand, there will be an incoming sell pressure leading to a drop in price, which could be risky.
FDV, when compared to market cap, shows you safe investments to key into. For instance, a project with a low market cap than a high FDV can be risky. However, a project with a lower market cap than a low or moderate FDV has lesser risk. A project where the market cap is equal to the FDV is fully diluted.
Advantages of a Fully Diluted Project
- No Future Dilution Risk – Since all tokens are already in circulation, there’s no inflation risk from token unlocks or emissions.
- Fair Market Valuation – The price reflects actual demand rather than speculation on future token releases.
- More Predictable Price Movements – With no new supply entering the market, price action is driven purely by demand and adoption.
Disadvantages of a Fully Diluted Project
- Limited Growth Potential – Without new token incentives (staking rewards, liquidity incentives), adoption and network participation may slow down.
- No Additional Rewards for Holders – Many projects use token emissions to reward stickers and community members, which a fully diluted project lacks.
- Risk of Market Saturation – If demand doesn’t keep increasing, the project might struggle to maintain investor interest, leading to stagnation or decline.
FDV vs Market Capitalization: Differences
| Areas | Fully Diluted Valuation | Market Capitalization |
| Definition | The total value of a cryptocurrency if all tokens were in circulation. | The total market value of a cryptocurrency’s circulating supply. |
| Formula | FDV = Maximum Supply × Current Price | MCap = Circulating Supply × Current Price |
| Supply Considered | Maximum supply (all tokens, including locked or unminted ones) | Only circulating supply (tokens currently available for trading) |
| Use Case | Estimates a project’s future valuation if all tokens enter circulation. | Represents the current market value of the cryptocurrency. |
| Volatility Impact | It can be misleading if many tokens are locked or yet to be released. | More accurate for assessing current market conditions. |
| Investor Bias | It helps assess potential inflation and long-term valuation risks. | Useful for determining the current size and position of a crypto asset in the market. |
Factors That Influence Fully Diluted Valuation
- Token Supply Dynamics: Total vs. Circulating Supply – FDV is calculated by multiplying the total supply of the token with its current price. The more apart the two supplies are, the more volatile the token’s price becomes as new ones are introduced into the market.
- Token Unlock Schedules – The gradual release, the team’s portion, and bonus staking rewards are the main ways new tokens are added to the supply. By learning how a project will open up, you can estimate whether there will be a sell pressure effect and, if so, who will most likely dump the tokens, whether early investors or the team.
- Market Speculation and Demand—The valuation of your investment changes according to investors’ sentiment. When demand is high, prices rise, inevitably increasing the FDV. Otherwise, when the market turns bearish, or corrections occur, the FDV decreases. Events like trades, transactions, and other institutions’ interests are the main factors that affect this.
- Project Fundamentals – A comprehensive analysis of a project’s progress, product use case, and market adaptation are the factors you should analyze to decide if its FDV is secure. Solid projects with good teams, vibrant communities, and multiple uses are more likely to maintain or increase their FDV, whereas projects with weak or inactive traits may have to let their FDV sink.
Benefits and Drawbacks of Using FDV as a Price Prediction Tool
Benefits of Using FDV for Price Prediction
- Gives a Complete Valuation — FDV considers the total token supply, helping you assess a project’s long-term value rather than just its circulating market cap.
- Helps Identify Dilution Risk – A high FDV relative to market cap warns you about potential inflation and sell pressure from future token unlocks.
- Useful for Comparing Projects – FDV allows you to compare different crypto projects on an equal footing, especially when they have varying circulating supplies.
Drawbacks of Using FDV for Price Prediction
- Doesn’t Account for Demand Growth – FDV focuses on supply but ignores how market demand and adoption could increase token value.
- Can Be Misleading for Inflationary Tokens – Some cryptocurrencies have no max supply (e.g., Ethereum), making FDV calculations less useful as a price prediction tool.
- Market Sentiment and Utility Matter More – A project with high FDV but no real use case or adoption may never reach that valuation, making FDV an unreliable sole indicator.
Conclusion
In summary, FDV is a good tool for making your investment decision on whether to invest in a crypto project and its possible outcome. While it is a useful tool, FDV is not a perfect predictor of price. You should use it alongside other factors like market demand, tokenomics, and project fundamentals before making investment decisions.
