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What is Fully Diluted Market Cap? Definition & Explanation

Eric Huffman
Last updated: | 8 min read

Market capitalization (market cap) is an important metric in crypto investing because it lets you compare the value relative to potential revenue. The metric also allows you to compare the project relative to similar projects to guide your investment decisions. But what does fully diluted market cap mean, and how does this compare to market capitalization?

In crypto, a fully diluted market cap refers to the value of a cryptocurrency after all the tokens are circulating. Often, crypto assets aren’t in full circulation yet, meaning some of the tokens have yet to be minted or released. This means that the market capitalization might not indicate the full value of the token. It also means that you might not see the big picture when comparing projects using only the market cap.

Definition: What is Fully Diluted Market Cap? (FDMC)


A fully diluted market cap — sometimes called a fully diluted value (FDV) — refers to the value of a cryptocurrency once all the coins or tokens are in circulation. A market cap, short for market capitalization, only considers the value of the coins or tokens currently in circulation. By contrast, a fully diluted market cap calculates the value of the entire expected supply based on current per-token market values.

Market Cap vs Fully Diluted Market Cap


The term market cap is often used in crypto investing to compare the value of two assets. For example, Bitcoin (BTC) has a current market cap of $1,240,811,911,927 ($1.24 trillion), whereas Ethereum (ETH) has a smaller market cap at $354,618,546,322 ($354 billion) based on today’s trading price.

However, Bitcoin’s circulating supply will grow over the next 100+ years, eventually reaching 21 million bitcoins. Today’s market cap doesn’t reflect the future growth in BTC supply, so we need a way to measure the future BTC price. That’s where fully diluted market capitalization (FDMC) comes into play.

bitcoin market details

What is Market Cap in Crypto?

A market cap is the total value of the circulating supply of a coin or token. Market capitalization only considers the circulating supply of a crypto asset, which means the amount that people can send, spend, or trade. The figure doesn’t consider future supply growth, just the current market value.

Here’s how to calculate the fully diluted market cap. For an example, we can look at Hedera (HBAR).

  • Current Circulating Supply: 35,738,995,211 HBAR tokens
  • Current Price Per Token: $0.1087

To calculate the market cap, just multiply the current circulating supply by the current value per token.

35,738,995,211 x $0.1087 = $3,884,828,779

Hedera’s market cap is approaching $3.9 billion. This gives us a basis for comparison against similar projects. A market cap several times higher than a similar project could indicate that the token is overvalued. However, it’s essential to view the big picture, including potential opportunities as well as potential pitfalls.

Market cap offers a starting point for comparing projects or measuring revenue against price. However, if a significant increase in supply is expected, it’s also important to calculate the fully diluted market cap.

What is Fully Diluted Market Cap?

Expected inflation in the supply will likely affect the price per token. Inflation in supply dilutes the value. So, for some cryptocurrencies, the fully diluted market cap could be a valuable metric when choosing whether to invest and at what price. The fully diluted market cap measures the value based on the current market price, assuming all the coins or tokens are in circulation. Often, this figure is much larger than the market cap.

Let’s look at Hedera (HBAR) for this example as well.

Earlier, we saw that Hedera has nearly 36 billion HBAR tokens in circulation. However, the total supply of HBAR is 50 billion, an increase of nearly 50% compared to the current circulating supply.

  • Maximum Supply: 50,000,000,000 HBAR tokens
  • Current Price Per Token: $0.1087

To calculate the fully diluted market cap, multiply the maximum supply by the current price per token.

50,000,000,000 x $0.1087 = $5,435,000,000

Based on the expected dilution, Hedera’s fully diluted market cap is $5.4 billion.

The difference between the market cap and the fully diluted valuation may affect your investment decision or help you choose entry and exit strategies more precisely.

Why Fully Diluted Market Cap is Important


The reason to consider a token’s fully diluted market cap centers on supply and demand. If demand remains the same as supply increases, prices fall.

For example, we can look at Axie Infinity’s token, AXS. Axie Infinity was one of the first web3 games and still remains popular. However, the game sees fewer players now than in its heyday. The current supply of AXS tokens is 144,604,868 compared to a max supply of 270,000,000, which will nearly double the amount of AXS over time. The year-over-year price for the token is flat as of this writing. But if demand doesn’t increase, the price may fall as more supply becomes available.

axs fully diluted market cap

In short, an expected increase in supply often translates to future selling pressure which will affect the future value. However, an increase in demand may offset this risk.

Identifying Tokens with High Inflation

Some tokens have an overhanging supply, meaning that more tokens will be released over time. However, there may be a cap on the supply. In other cases, there is no cap. For instance, Dogecoin is an inflationary coin with no cap, although the rate of inflation decreases each year.

When investing in coins or tokens, part of the due diligence includes researching potential inflation that could affect the price. When buying tokens, also research whether the token is mintable, meaning the team could simply mint more of them at some point, potentially flooding the market.

messari sol fully diluted market cap

Crypto tools like CoinMarketCap, Glassnode, and Messari can be handy when identifying crypto assets with an overhanging supply.

Comprehensive Valuation Metric

The fully diluted market cap provides a big-picture view of the token’s value. Often, the current market cap becomes a primary focus, but eventually, new tokens entering the market will affect the market cap. The fully diluted market cap can be a glimpse into future success, assuming no change in demand. A larger supply without increased demand likely means a lower price per token.

The Limitations of Fully Diluted Market Cap as a Metric


While a fully diluted market cap offers a broad view of future supply, it misses some potentially significant details. Tokens can be effectively removed from the circulating supply, either temporarily or permanently. Staking, locks, and burns represent the most likely scenarios.

Doesn’t Consider Circulating Supply Dynamics

The circulating supply can change in a number of ways, making fewer coins or tokens available for buyers.

  • Staking: A tokens Solana (SOL) and Cardano (ADA) see a massive amount of the supply staked to earn rewards. ADA can be sold while staked, but SOL requires a lock. In both cases, the yield from staking often makes the staked supply sticky and less likely to be sold.

sol staking stats dune

  • Token locks: Team or venture capital (VC) tokens may be time-locked, meaning the additional supply can’t be sold until the lock expires. Many protocols also use a lock, such as Aerodrome, which has a max-lock of four years to earn the highest yields.
  • Token burns: BNB and Shiba Inu (SHIB) are two examples of tokens that are actively burned. When tokens are burned, they are sent to an unrecoverable wallet address, taking them out of circulation forever.

Unrealistic Valuation

The fully diluted market cap is an important metric to track but doesn’t tell the whole story. It also makes some assumptions that might not prove to be accurate.

  • FDMC assumes all tokens will eventually be in circulation. This may not be the case; token burns remove tokens from circulation. It’s also possible that not all of the supply will be released.
  • Fully diluted market cap doesn’t account for time. The overhanging supply could take years to reach the market, if at all. If the release takes a long time, supply/demand dynamics could change drastically during that time.

While FDMC should be considered, it should be viewed in the context of changing market dynamics, such as growth expectations and factors that could affect the circulating supply, such as staking or burning.

Conclusion


The fully diluted market cap measures the value of a coin or token at current prices if the entire supply is available. However, the supply release could take years, during which time other factors might change. Demand could increase or decrease. Another possibility is that tokens could be burned or staked, effectively removing supply from the market. Weigh the fully diluted market cap as part of a broader view when considering entry or exit points for your crypto investments.

FAQs

Is a high fully diluted market cap good?

A fully diluted market cap that’s significantly higher than the market cap can suggest a lower price per token in the future. However, other factors, like increased demand, can offset the increase in supply. When considering an investment, neither market cap nor fully diluted market cap tell the full story.

What does FDV mean in crypto?

FDV is an abbreviation for fully diluted value. A fully diluted value, also known as a fully diluted market cap reflects the value of all the tokens, including those yet to be issued, at the current market price.

Is market cap or fully diluted market cap more important?

Both market cap and fully diluted market cap are important metrics to measure. However, if the fully diluted market cap is significantly higher than the market cap, it’s wise to invest more time in research to understand what can increase demand in the future.

How do you calculate fully diluted market cap?

To calculate the fully diluted market cap, multiply the current per-token price by the maximum supply of tokens.

What does it mean if a crypto is fully diluted?

A fully diluted token has no additional supply that will become available in the future, meaning the circulating supply is all the tokens that will ever exist.

References