What is Fully Diluted Valuation (FDV) in Crypto?
Why Trust Cryptonews
Ad Disclosure
We believe in full transparency with our readers. Some of our content includes affiliate links, and we may earn a commission through these partnerships. Read moreThe market capitalization of a coin or token often captures the most attention. However, fully diluted valuation (FDV) is vital in determining whether a crypto project is a good long-term investment. In simple terms, market capitalization measures the total value of the current supply, whereas FDV in crypto measures the value of current tokens and tokens that will become available later.
FDV is similar to fully diluted market capitalization, which also considers future supply. However, the term FDV is more commonly used with new launches, such as initial coin offerings (ICOs). In this guide, we’ll explore fully diluted valuation and how it may affect investment decisions. Let’s dig in.
What Does Fully Diluted Valuation (FDV) Mean?
FDV’s meaning in crypto refers to the total market value of a token after all of the supply becomes available. It’s commonly used to look at the potential future value of a presale or ICO. ICOs and presales may only make a portion of the supply available while more supply may be reserved for later, expanding the total supply and possibly reducing the market value of each token.
Dilution suggests more tokens, splitting the value further. This works similarly to publicly traded companies that plan to issue more shares. Ownership is diluted by the additional shares.
For example, imagine a new token ICO in which 200 million tokens will be made available for early buyers. If all the tokens sell and the price reaches $0.10 per token, the market cap will be $20 million.
However, if the project allocates another 800 million tokens for future distribution, the total supply will be one billion tokens at some point. As an investor, you’ll want to consider the total supply.
To calculate the fully diluted value, you would multiply the full supply by the price per token. In this example, that equals $100 million rather than the $20 million current market cap.
Fully Diluted Valuation vs Fully Diluted Market Cap
So, what does FDV mean in crypto, and how is it different from the fully diluted market cap?
Fully diluted valuation is often used interchangeably with fully diluted market cap. For example, two leading crypto data sites, CoinMarketCap and CoinGecko, both provide data on diluted values in addition to the current market capitalization. However, each of these sites labels the data differently. CoinMarketCap uses a fully diluted market cap, whereas CoinGecko uses a fully diluted value.
In this case, the two terms are synonymous and provide the same data. CoinGecko uses FDV as seen below.
However, fully diluted value is more commonly used for presale coins, whereas fully diluted market cap is more common for already listed coins.
Fully Diluted Valuation vs Circulating Market Cap
Earlier, we looked at an example of a project with 200 million tokens in circulation. These tokens are already circulating in the market and can be resold. The circulating market cap, often simply referred to as the market cap, calculates the value of currently available tokens at the current market price.
In the example below, Kadena trades at $0.4822, and 285,819,248 tokens are in circulation. This makes the circulating market cap $137,809,476.
However, the FDV considers the total supply after all the tokens are in circulation. The FDV is much higher because the total supply will be one billion tokens instead of the 285 million tokens currently in the market.
What is an FDV Ratio?
A fully diluted valuation ratio, sometimes called an MC/FDV ratio, compares the current market capitalization against the FDV. A higher ratio indicates a larger percentage of the supply is already in the market and suggests greater price stability. A lower ratio indicates more risk due to an overhanging supply that could bring future selling pressure.
Many consider an FDV ratio of 60% or higher to be a bullish indicator. In this example, only 40% of the supply hasn’t been released yet. Lower FDV ratios suggest more price risk.
Why is FDV Important?
FDV provides a big-picture view to help you make better decisions. When investing, you’ll want to weigh the expected effects of future demand to determine if the current token price offers a good entry point. If a significant amount of supply becomes available later, prices may fall without an increase in demand.
Let’s revisit the simple example from earlier. A new cryptocurrency token launches with 200 million tokens allocated to presale. The price per token is $0.10, giving the token a market cap of $20 million.
However, another 800 million tokens will become available later, making the fully diluted valuation $100 million. At a $20 million market cap, the project may look like a good value. Is it still a good value at $100 million? Demand must increase fivefold to hold the price at $0.10 per token.
Perhaps the project will far surpass this level of demand, or maybe it won’t gain enough traction and could lose value. FDV weighs the expected supply inflation to provide a long-term perspective you can consider before investing.
How to Calculate Fully Diluted Valuation
To calculate the fully diluted valuation, you need only two numbers: the total supply and the current price per token.
Let’s look at the Anchor Protocol (ANC). In the example below, the current price is $0.006897.
However, the total supply is one billion tokens. Multiply the price by the total supply to calculate the FDV.
- 0.006897 x 1,000,000,000 = $6,897,000.
For presale or ICO coins, you can usually find the total supply in the whitepaper or on the presale webpage.
For an example, let’s look at the Pepe Unchained coin. The project plans a Layer 2 chain launch after the presale ends. The whitepaper tokenomics indicate a total supply of 8 billion tokens, with 20% of these allocated to the presale. The balance will come online in various ways over time, including 20% for marketing and 30% for staking rewards.
Let’s do the math. The presale page shows a current price of $0.009163 per token.
Twenty percent of eight billion tokens equals 1.6 billion tokens for presale. This lets us calculate the market capitalization.
- 1,600,000,000 x $0.009163 = $14.6608 million
However, the presale only allocates 20% of the supply. The FDV uses a total supply of eight billion tokens.
- 8,000,000,000 x $0.009163 = $73.30400 million
The market values the project at more than $70 million based on the current price per token. You’ll want to weigh the project’s long-term prospects to decide if that number makes sense for you as an investor.
Advantages of Using FDV as a Metric
The fully diluted value for a given crypto project allows you to compare the project’s value against similar crypto projects, including well-established ones. For example, you could compare the FDV for the Pepe Unchained token against similar Layer 2 projects. Is it undervalued, or is it overvalued? FDV can answer the question, but you’ll also need to consider the project team and plan.
Insight into Potential Market Value
Let’s say you find a similar Layer 2 project that’s already launched and has a fully diluted market cap of $500 million. Pepe Unchained’s FDV at $73 million looks like a good value in comparison, assuming you think the team can execute their plan well and the project sees adoption.
Useful for Long-Term Investors
Market cap refers to the current market value, whereas fully diluted valuation calculates the value after all the tokens reach the market. This makes FDV an important tool for those looking for the best long-term crypto investments. Market cap grabs all the headlines, but FDV provides a long-term perspective.
Cross-Project Comparisons
Fully diluted value also offers a reliable way to compare projects and their valuations. The token price becomes meaningless without also considering the supply — as well as the supply that will come online later. Two coins with the same trading price may have vastly different total supplies.
FDV cuts through the confusion because its calculation accounts for present and future supply. It also ignores the circulating supply of tokens. One token may be at the beginning of its distribution, whereas another may still be in presale with comparatively few tokens circulating. FDV ensures that you’re comparing relevant numbers.
For instance, comparing two newer Layer 1 projects, SUI and TON, total supplies and the current market cap differ dramatically. SUI has a total supply of 10 billion tokens, whereas TON has a total supply of 5.1 million tokens.
Even if the per token price were the same (they aren’t), the difference in total supply makes the price meaningless without considering total supply. To add complexity to the equation, TON has an infinite maximum supply, meaning the supply can grow even further.
- SUI: 10 billion (total supply) x $0.8837 (per token price) = $8.8 billion FDV
- TON: 5.1 billion (total supply) x $6.77 (per token price) = $34.6 billion FDV
The FDV lets you compare these tokens with vastly different numbers of tokens in circulation and differing total supplies to make informed investment decisions.
Transparency in Fundraising
Presales and ICOs often serve as fundraising tools for projects with big plans but little capital. For investors, presale pricing may offer a significant price advantage over the expected market price after launch. However, the price is meaningless without knowing how many tokens will ultimately come to market.
FDV helps investors visualize the project’s market cap if it were to be listed. In effect, fully diluted value acts like a long-range telescope that lets investors preview the destination before arriving.
Limitations of Using FDV as a Metric
FDV faces some limitations. While the measurement accounts for the total token supply, it misses some market variables. These missing puzzle pieces can lead to inaccurate assumptions when considering long-term valuations. Let’s look at some of the ways in which fully diluted valuation falls short.
Overestimation of Value
In some cases, the total token supply is theoretical, meaning that it’s unlikely that the cryptocurrency project will ever produce that many tokens. In this situation, the FDV overestimates the total value of the token.
As another consideration, while the total supply metric you’ll find on coin data sites accounts for burned supply, meaning tokens removed from circulation by sending the tokens to an unrecoverable address, it does not account for future burns that may occur. For example, Binance burned $450 million worth of BNB tokens in a single quarter. FDV remained silent on the matter until after the burns occurred.
Does Not Reflect Market Conditions
Crypto’s volatility often makes it difficult to make accurate long-term price predictions based on current prices. Small-cap tokens, including most newly launched tokens, can vary dramatically in price daily. When you need to multiply the early supply by a factor of five or even more, these daily price swings cause enormous changes in the FDV.
Fully diluted value also ignores market sentiment and its effect on prices across the board. In late 2021, Bitcoin traded at a high of nearly $70,000. By 2022, the leading cryptocurrency dipped below $16,000. Bitcoin often leads the market, dragging cryptocurrency prices for other projects up or down as its price moves. While Bitcoin’s dominance (its market cap relative to the entire crypto market cap) has fallen in the past decade, the price movements of Bitcoin still cause unreliable price data in other cryptocurrencies.
Ignores Timing of Token Release
Timing for token releases matters. For example, if you’re considering a presale token in which 20% of the one billion token supply is allocated for presales, the release timing of the other 80% matters quite a bit. If the token release takes ten years, demand may be able to keep the price aloft, and you may even see significant gains. However, expect the token price to struggle if the remaining 80% of the supply will come online within ten weeks or ten months. FDV ignores release timing altogether.
Conclusion
Fully diluted valuation refers to the market value of a cryptocurrency based on the current price after all of the tokens are released. While the concept is similar to a fully diluted market capitalization, FDV is more commonly used with ICOs and prelaunch coins to visualize the long-term market value and compare it against other projects.
Often, only a small percentage of the supply is released during the early days of a project, making the market cap an unreliable metric. FDV looks further into the future and returns a valuation that accounts for the entire supply, including yet-to-be-released tokens.
FAQs
What is a good FDV ratio?
Many consider tokens with an MC/FDV ratio of 60% or greater to be safer for long-term investments. If the FDV ratio is lower, a higher percentage of the total supply will reach the markets over time, possibly hurting prices. However, this metric should be used as part of a much broader analysis of a project’s potential.
Is a high FDV good?
FDV is best used as a way to compare the value of similar projects that may have differing supplies or be at a different point in their distribution schedule. FDV also lets investors visualize the long-term prospects for an investment. A high or low FDV has more meaning when used in a context, such as a comparison between similar tokens.
What is the difference between MC and FDV?
Market capitalization (MC) measures the total market value of the circulation supply, whereas fully diluted valuation (FDV) measures the total supply, including tokens yet to be distributed, at the token’s current market price.
What does high FDV low float mean?
A high FDV with a low float indicates a low FDV ratio. In this situation, only a small percentage of the total supply becomes available at presale or ICO. A much larger amount will be released later. This scenario can create more price risk, particularly if demand doesn’t increase at the same or higher rate than the new supply.
References
- Binance Burns $450M BNB in Quarterly Move (yahoo.com)
- Bitcoin Price Hit a Multi-Year Low, Making it a Year to Forget for Biggest Cryptocurrency (wsj.com)
- Bitcoin market dominance (statista.com)
in numbers
Camila Karam 
Connor Sephton 