FDV is the total worth or market cap of a cryptocurrency if the entire supply of tokens were in circulation.
What Is Fully Diluted Value (FDV)?
Today, investors consider fully diluted valuation as well when investing in a company or cryptocurrency project. So, it can be taken as a metric to understand the tokenomics of a project.
To determine the fully diluted value of a cryptocurrency, you need to take the total supply of a coin and then multiply that number by the price per coin. To find this out, you’ll have to do a little research on the specific cryptocurrency you’re interested in.
Market Cap vs Fully Dilated Value
However, there may be more tokens coming into existence in the future. For example, coins or tokens are held back from public sale for later release by their creators in order to fund development or marketing initiatives. In these cases, it may be useful to think about what would happen if all those coins were released into circulation simultaneously at the current market price. This gives an indication of what your price would be per share/token if you bought today and all else remained unchanged. Every cryptocurrency project announces its maximum supply in its initial stages and the time frame to achieve it.
If ABC cryptocurrency has a maximum supply of 1 million tokens, its FDV will be $1 million.
The concept of FDV can be applied to traditional trading or stock markets as well.
The fully diluted value of the company is the amount you would pay if you bought all outstanding stock, plus all stock that could potentially be issued, such as options and convertible debt. Fully diluted value is important for investors to know because it gives them a complete picture of the future of the company. This can help them assess whether the investment is favorable.
Options and convertible debt are two sources of stocks that affect fully diluted value. Options are contracts that give the holder the right to purchase shares at a set price in the future. If you factor in all options as current stock, then you get the fully diluted value of the company. Convertible debt is a type of loan that allows debt holders to convert their loans into shares in the company at a set price.
If you calculate a fully diluted value without including these two sources, you could underestimate the investment cost and make poor investment decisions. For example, if your initial estimate of a company’s value was $100 million, but it had $50 million worth of options outstanding and $30 million worth of convertible debt, your actual cost would come out as $180 million — 80% more than your initial estimate.
Whether or not FDV is a strong metric to be taken into consideration is still a debate. Some investors see it as a powerful metric while others call it a misleading concept when it comes to cryptocurrency investment.