Fully Diluted Value: Assessing Crypto’s Potential Worth
Fully Diluted Value (FDV) is the total value or market value of a cryptocurrency if all tokens were in circulation.
What is Fully Diluted Value?
Today, investors also consider fully diluted value when investing in a venture capital or cryptocurrency project. That is, it can be used as a metric for understanding the tokenomics of a project.
To determine the fully diluted value of a cryptocurrency, you need to take the total number of coins and then multiply that number by the price per coin. To determine this, you need to do a little research on the particular cryptocurrency you are interested in.
Market value vs Total value
Let’s say there are 10,000 tokens of ABC cryptocurrency in circulation, and each of them has a value of $1 – then the market value of that cryptocurrency would be $10,000.
However, the number of tokens may increase in the future. For example, coins or tokens are held back from public sale for later release by their creators to fund development or marketing initiatives. In such situations, it is useful to think about what would happen if all of these coins were released into circulation in a lump sum at the current market price. This will allow you to understand what the price of a single stock/token would be if they were bought today and everything else remained the same. Each cryptocurrency project announces its maximum supply volume and the timeframe for reaching it in the first stages.
The fully diluted value of a company is the amount you would pay if you bought all of the outstanding stock plus all potentially issuable stock, such as options and convertible debt. Fully diluted value is important information for investors because it gives them a complete picture of the company’s future. It allows them to evaluate the feasibility of the investment.
Options and convertible debt are two sources of stock that affect fully diluted value. Options are contracts that give the owner the right to buy stock at a set price in the future. If you count all options as current stock, 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 company stock at a set price.
If you calculate fully diluted value without considering these two sources, you risk underestimating the value of the investment and making poor investment decisions. For example, if your original valuation of the company was $100 million, but it had $50 million of options outstanding and $30 million of convertible debt, the actual value would be $180 million – 80% more than your original valuation.
Whether FDV is really the metric worth paying attention to is still debatable. According to some investors, it is a powerful metric, while others call it a misleading concept when it comes to cryptocurrency investments.