Fully Diluted Capital (FDV) is an important metric commonly used when evaluating cryptocurrency projects, providing insight into the project’s total value potential. FDV represents the estimated market Capital if all Token — including Token not yet in circulation — were available on the market at the current time.
Unlike circulating supply, which only refers to the number of Token being traded, FDV takes into account the total supply of Token. Understanding FDV helps to evaluate the value of a project comprehensively, rather than just based on the number of Token currently on the market, thereby providing deeper insight into the project's potential.
This article will explain what fully diluted Capital is in the cryptocurrency market, the steps to calculate FDV, the importance of FDV, and the risks of relying on this metric in the cryptocurrency space.
Fully Diluted Capital (FDV) Explained
Think of FDV (fully diluted market Capital ) as buying a house that is still under construction. You can only see part of the house now, but know that more rooms will be built in the future. In the crypto world, FDV represents the estimated total value of a project if all Token — Token existing and Token — were sold on the market. FDV is calculated by multiplying the current price of a Token by the total supply, including Token that are locked, reserved for the future, or have not yet been created.
Why is it important to understand FDV in crypto investing? There are many reasons why FDV is important in this space.
Many cryptocurrency projects Token Issuance gradually through mechanisms such as vesting, Staking, or mining. For example, Ripple has implemented a vesting scheme for XRP to lock in long-term benefits, Tezos rewards XTZ Staking for participating in the network, and Bitcoin incentivizes Miners to secure the network.
So while circulating supply only reflects the number of Token currently in existence, FDV XEM at the total supply that will appear in the future.
This gives you a broader view of the project's future potential, but keep in mind that future Token prices may fluctuate.
| Total supply | Max Supply | Circulating supply | |
| Meaning | Total issued Token , including unissued Token | Absolute limit on the total number of Token that can exist | Number of Token currently available for trading |
| Include | Includes locked, burned and reserved Token | Fixed limit set by protocol; unchangeable | Exclude locked, burned and reserved Token |
| Changes over time | Subject to change with new issuance or Token burning | Keep as is; predetermined by protocol | May fluctuate due to new issuance, Token burning or Token Lockup |
| Lock/burn effect | Locked Token reduce available supply; burned Token reduce total supply | No effect; reflects maximum limit | Adjusts according to locked and burned Token ; changes as Token are issued or removed |
Why FDV Matters for Cryptocurrency Investors
For investors, FDV is like XEM at the total cost of an item you are buying in installments. When a project has a high FDV, it indicates that more Token will be released into circulation in the future, potentially reducing the value of the Token you currently own. With a low market Capital , this can make the project appear “cheaper” than it is now.
However, if the FDV exceeds the current market Capital , this may indicate that the project may be overvalued. Understanding FDV helps you make better investment decisions by allowing you to see the full potential value of an investment rather than just relying on the current value.
Too much financial jargon? Keep it simple:
- FDV is the total potential value.
- Market Capital is the current value.
Next, we will explore the difference between FDV and market Capital through an example in the following section.
FDV and Market Capital : What's the Difference?
FDV and market Capital may sound like similar terms, but as mentioned above, they are different concepts.
FDV is the overall potential value of a cryptocurrency if all Token were in circulation. In contrast, market Capital is the current value of a cryptocurrency based on its circulating supply and the price per Token.
Imagine a new cryptocurrency called XYZ. There will be a total of 1 billion XYZ Token in existence (total supply), and there are currently 500 million XYZ Token in circulation (circulating supply). Now, let's analyze the FDV and market Capital of this coin:
- FDV : If each XYZ Token is currently worth $0.50, then the FDV would be $500 million. This represents the maximum potential value of XYZ if all 1 billion Token were in circulation and valued at $0.50 Token.
- Market Capital : If there are only 500 million XYZ Token currently in circulation and the price per Token is $0.50, then the market Capital would be $250 million.
How are these numbers calculated? Let's XEM at how FDV and market Capital are calculated.
How is FDV calculated in crypto?
The following formula is used to calculate FDV:
FDV = Total Supply × Current Price per Token
In there:
- Total Supply: This is the total number of Token that have been or will be issued by a cryptocurrency project. Total supply includes both Token that are already in circulation and Token that have not been issued (locked, reserved for the future, or in the process of being issued).
- Current price per Token: This is the current market value of each Token at the time of calculation. This price may fluctuate over time based on supply and demand in the market.
Using the above example, with a total supply of 1 billion Token and a current price of $0.50 per Token, the FDV would be:
FDV = 1 billion Token x 0.5 USD = 500 million USD
Market Capital is calculated using the following formula:
Market Capital = Circulating Supply × Current Price of Each Token .
For example, if the circulating supply is 500 million Token and the current price of each Token is $0.50, the market Capital would be:
Market Capital = 500 million Token × 0.5 USD = 250 million USD.
This is the value based on the amount of Token currently available for trading on the market!
The impact of FDV and market Capital on cryptocurrency projects can be significant, affecting how the market views the project’s long-term potential. Let’s explore a few scenarios to better understand their impact:
- Low Market Capital , High FDV : The current value of the project is low but could be much higher if all Token are sold. This may indicate that the project is currently a “hidden gem”, but be wary of the potential for future value dilution.
- High Market Capital , Low FDV : The current value of the project is high, but the future potential is lower than the current value. This may indicate that the project is overvalued or has fully reflected its future growth.
- Low Market Capital , Low FDV : The current value and future potential of the project are both not good. This could be a new or struggling project with little chance of success.
- High Market Capital , High FDV : The project has strong current value and high future potential. This usually indicates that the project is well established and growing, but it is important to ensure that the high FDV does not lead to future value dilution.
So, which scenario is more common? High market Capital and high FDV are often found in projects that are well established and have strong growth potential. As of September 10, Bitcoin’s market Capital is $1.135 trillion. With a Max Supply of 21 million coins and a price of $57,502 per coin, Bitcoin’s FDV is around $1.207 trillion.
In contrast, Nexo, ranked 100th by CoinMarketCap as of September 10, has a market Capital of around $558.3 million and FDV of around $997.3 million, with 560 million Nexo Token in circulation out of a total supply of 1 billion Token.
The question now is whether FDV is a reliable measure of a cryptocurrency's true value. Let's find out.
The Risks of Relying on FDV in Cryptocurrency Investing
Relying on FDV in cryptocurrency investing can be risky for several reasons. FDV provides a forecast of the future value of a cryptocurrency by estimating the total potential value if all of its Token were in circulation. However, without taking other factors into account, this figure can be misleading.
Furthermore, the actual Token Issuance schedule is not XEM by FDV. Many projects have Token that are issued gradually or locked for a period of time. Therefore, if a large portion of the Token have not been issued, the value of the project may be more accurately reflected by the current market Capital . Issuing more of these Token may reduce their value, leading to a decline in Token price.
Additionally, FDV assumes that the Token price will remain the same, which is unlikely to happen in reality. If there are more Token in circulation, the increased supply could cause the Token price to fall and affect the way FDV is calculated. Furthermore, FDV does not take into account factors that may affect the real value of a Token, such as market competition, regulatory changes, and ongoing project development.
Therefore, FDV is a useful indicator, but cannot be used alone. To make a comprehensive investment decision, investors need to consider other factors such as market Capital , Token Issuance schedule, and the overall health of the project.
