Unlocking Crypto's Total Value: A Dive into Fully Diluted Valuation

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31 Aug 2023

Fully diluted valuation (FDV) is an important metric in evaluating cryptocurrencies and crypto projects. It refers to the total value of all coins/tokens that will ever be in circulation for a particular cryptocurrency or project.

Calculating FDV

The formula for calculating fully diluted valuation is:

FDV = Current Circulating Supply x Current Price Per Coin/Token

For example, if a crypto has 100 million coins currently circulating at a price of $1 per coin, its FDV would be:

100,000,000 coins x $1 per coin = $100 million

However, this calculation only accounts for the coins currently in circulation and excludes any coins that have yet to be mined or issued. To find the true FDV, you need to factor in the total supply including coins that will be issued in the future.

The full formula is:

FDV = (Current Circulating Supply + Future Supply) x Current Price Per Coin/Token
So if the crypto in the example above has a maximum supply of 200 million coins, the FDV calculation would be:

(100 million circulating coins + 100 million future coins) x $1 per coin = $200 million
The FDV gives the theoretical value of the crypto if all coins were in circulation and available to be traded. This allows for an "apples to apples" comparison between cryptocurrencies with different circulating and total supplies.

Comparing Market Cap and FDV

FDV differs from market capitalization (market cap) which only considers the coins currently circulating.

Market Cap = Current Circulating Supply x Current Price Per Coin/Token

Market cap changes constantly as the price fluctuates, while FDV remains more static since it accounts for future supply.

If a crypto's market cap is lower than its FDV, it indicates there is room for the market cap to grow as more coins come into circulation. The discrepancy between market cap and FDV signifies how undervalued a crypto could be.

Conversely, if market cap is much higher than FDV, the crypto may be overvalued based on its future supply schedule.

Use Cases for FDV

Calculating a crypto's FDV is useful for:

Comparing the valuations of cryptocurrencies with different supply structures. FDV allows you to compare cryptos like Bitcoin and XRP which have vastly different numbers of coins in circulation.
Evaluating new or pre-launch projects. For new projects with tokens yet to be issued, FDV gives a projection of future valuation based on total token supply and hypothetical price. This helps assess market interest and potential.
Identifying possible price appreciation. A high FDV-to-market cap ratio signals a crypto is potentially undervalued at current prices and could rise in value.
Analyzing fair value. FDV provides a long-term fundamental valuation baseline and helps indicate when a crypto is overbought or oversold.
Modeling future valuation scenarios. Changing the inputs for future supply and token price allows creating various FDV projections.
Ranking cryptocurrencies by valuation. Comparing FDVs rather than market caps gives a more accurate crypto valuation ranking.

Limitations of FDV

While FDV is a useful metric, it has some limitations to consider:

Hypothetical nature. Since FDV relies on assumptions of future supply and theoretical prices, it represents a hypothetical valuation rather than intrinsic value.
Unknown circulating supply. It can be difficult getting accurate data on circulating supply, which affects FDV calculations.
Accounting for lost coins. FDV may overstate potential valuation by including coins/tokens that are permanently lost or unrecoverable.
No price modeling. FDV simple multiplies price by total supply, without factoring in how increased supply could affect the token price.
No utility value. FDV only considers financial valuation, not the utility or technological value a crypto brings to its blockchain network.
Manipulation potential. Bad actors could artificially inflate FDV by issuing themselves large token balances before circulating coins more widely.
Changes over time. As projects mature and economic models shift, assumptions about total supply and valuation may change significantly.
Lack of comparability. FDV remains difficult to compare directly across different blockchains and crypto networks.

So while FDV gives a helpful long-term valuation snapshot, it should be considered alongside other fundamental factors when evaluating a cryptocurrency.

FDV Across Different Cryptocurrencies

Below is a look at how fully diluted valuation has been applied to various major cryptocurrencies:

Bitcoin - Bitcoin's maximum supply is capped at 21 million BTC. As of September 2022, there is some 19 million BTC in circulation. With BTC priced around $19,000, Bitcoin's FDV is approximately $399 billion currently. This FDV is approaching Bitcoin's market cap which sits at about $364 billion.

Ethereum - There is no cap on the total supply of Ether. As of September 2022, there are around 120 million ETH coins in circulation. Assuming a long-term total supply of 200 million ETH, and with ETH priced near $1,500, Ethereum's current FDV would be roughly $300 billion. Its FDV is also fairly close to its market cap of $182 billion.

XRP - XRP has a total fixed supply of 100 billion tokens, with some 49 billion currently in circulation. With XRP trading at about $0.32, its FDV comes to approximately $32 billion. However, XRP's $16 billion market cap is much lower, owing to many coins remaining locked for Ripple's partners and founders.

Dogecoin - The popular memecoin Dogecoin has an unlimited supply in theory. There are currently 132 billion DOGE coins circulating. Assuming a hypothetical long-term supply of 200 billion Dogecoins, and with DOGE at $0.06, the FDV for Dogecoin works out to about $12 billion. DOGE's actual $8 billion market cap is not far off its FDV.

Polkadot - The Polkadot blockchain has a maximum supply of 1 billion DOT tokens. Roughly 1 million DOT are currently in circulation. At DOT's price of $7, Polkadot's FDV comes to $7 billion. This is higher than its market cap of $6 billion, owing to more DOT still to be introduced.

Cardano - The native ADA token of Cardano has a maximum supply of 45 billion. There is currently over 34 billion ADA in circulation. With ADA priced at $0.47, Cardano's FDV is approximately $21 billion. This is higher than its market cap of $16 billion, showing room for growth.

The divergences between FDV and market capitalization for the above cryptocurrencies demonstrate how FDV provides additional insight into long-term valuation potential. Though based on assumptions, FDV gives crypto investors a more complete picture of overall market value.

Trends and Changes in FDV

In the early years of cryptocurrency, FDV represented future potential rather than intrinsic worth. However, as the crypto space has matured, FDV is being seen as a more meaningful valuation metric. Still, changing assumptions can greatly affect a project's FDV.

For example, ICO boom projects from 2017/2018 often had astronomical FDVs based on high token prices and supplies. As crypto winter hit and tokens crashed, their FDVs dropped precipitously.

More recent projects have been more conservative with token distribution models, keeping FDV closer to market cap. This shows a recognition that higher FDVs set unrealistic short-term expectations.

Overall, the gap between market cap and FDV seems to be tightening across major cryptoassets. FDV is being kept in check, while market caps rise to represent real-world capital inflows. This brings FDV more in line as a reasonable projection of long-term fundamental value.

While FDV has its limitations, it remains a useful valuation measure in the cryptocurrency sphere. It provides a long-term reference point for projected value based on maximum token supplies. This allows comparisons between cryptoassets with vastly different numbers of coins circulating.

FDV gives insight into potential growth if more tokens are introduced and adopted. It can reveal whether a crypto is currently overvalued or undervalued relative to its future valuation ceiling. Analysts suggest keeping an eye on coins with large market cap and FDV divergences.

However, FDV should be considered alongside other valuation methods like price-to-earnings ratios and discounted cash flow modeling. FDV gives the big picture, but price predictions and supply schedules are still largely speculative. Overall, FDV remains a valuable contributing metric for fundamental crypto analysis.