The difference between Market Cap and Fully Diluted Valuation (FDV) in the cryptocurrency market is as follows:
1. Market Cap
- Represents the total value of the currency based on the number of coins currently circulating in the market.
- Calculation method:
Market Cap = Current coin price × Circulating Supply
- Gives a picture of the project's value according to what is currently available to traders.
2. Fully Diluted Valuation (FDV)
- Represents the total value of the currency if all planned coins are issued (i.e., at full dilution).
- Calculation method:
FDV = Current coin price × Future total supply (Max Supply or Total Supply)
- Reflects the theoretical value of the currency if all units are issued (including coins reserved for the development team, miners, or future rewards).
Illustrative example
Assuming that coin XYZ has:
- Current price: 10 dollars
- Circulating coins currently: 1 million
- Future total supply: 1 million
- Market Cap =
10 × 1,000,000 = 10 million dollars
- FDV =
10 × 10,000,000 = 100 million dollars
Why is the difference important?
- If FDV is significantly higher than Market Cap, it means that there is a large number of coins that have not yet been issued, which may lead to price inflation (a decrease in price in the future due to increased supply).
- Some projects start with a small circulating supply and high FDV, which may make them a risky investment if there is not enough demand to absorb future supply.
It's preferable to analyze both indicators together for a better understanding of the project's value and potential risks.
