Fully Diluted Valuation (FDV) is a cryptocurrency price valuation metric that is calculated by multiplying a coin’s maximum potential supply by its current price.
The Fully Diluted Valuation, or FDV, of a cryptocurrency is a metric that calculates the value of a cryptocurrency according to the maximum number of coins or tokens that will ever be mined or minted.
For instance, in the case of Bitcoin (BTC), the total amount of BTC that will ever be mined is 21 million. Therefore, to calculate the FDV value of BTC, one would need to multiply 21 million by the BTC’s current price. On July 19, 2022, the price of BTC was around $23,144 USD. So, the calculation for that date would have been 21,000,000 x $23,144 USD = $486,024,000,000.
This differs from the market capitalization (market cap) of the cryptocurrency, as that amount only takes into account the amount of that cryptocurrency that is currently in circulation against its current price. Therefore, the FDV is hypothetic, whereas the market cap value is actual. Basically, the FDV is a method of calculating the future market cap of a particular blockchain project, and the market cap is the method of calculating the current net value of a cryptocurrency.
However, the FDV also applies to coins that have been minted but are ‘locked’ for future use. The purpose in doing so could be due to the project being an ICO, where the tokens will only be released once the blockchain project is launched. It could also be that the tokens will only be released by the developers as they are needed or to lower the coin or tokens prices if the demand has gotten too high thereby creating a financial barrier to the platform’s use. In the former case, this is an investment scheme, whereby the developers are selling the tokens at a marked-down rate to raise funds for their project, while the investor purchases them in the hopes that once the blockchain or dApp is launched, the cryptocurrency will be worth more later on.
Another reason or locking tokens is to ensure that the market is flooded with the cryptocurrencies before there is a demand for them. Otherwise, the value will be worthless and will lose potential investors. Additionally, if coins are unlocked through mining, staking, it will enhance their perceived value, as the amount of effort and computational power required to generate the coins will also be taken into account. Furthermore, the FDV calculation is also important to investors because it helps them to determine the best moment at which they should invest in, and later sell, various cryptocurrencies and tokens.