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The meaning of the term “Fully Diluted Market Cap” in the financial markets!
By reading the article “Fully Diluted Market Cap” published in Adaas Investment Magazine, you will be fully familiar with the meaning of the term “Fully Diluted Market Cap” in the financial markets! This level of familiarity can be enough when you need educational information about this topic.
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What Does Fully Diluted Market Cap Mean
The fully diluted part means that it includes all of a company’s outstanding shares, including options, warrants and convertible debt instruments. The fully diluted market cap is calculated by multiplying a company’s stock price by its total number of outstanding shares (including those held by employees or in treasury). This figure can be used for comparison purposes with other publicly traded companies in order to determine whether or not an investment would be profitable.
Is a high fully diluted market cap good?
A high fully diluted market cap is good. And it is better to invest in high fully diluted market cap companies than in LOW or MEDIUM fully diluted market cap companies. Because, if you are investing for the short term, you should prefer HIGH fully diluted market cap companies over LOW and MEDIUM ones.
How to calculate Fully Diluted Market Cap
The market capitalization of a company is calculated by multiplying its current share price by all outstanding shares. However, when calculating fully diluted market cap, total outstanding shares are adjusted to reflect potential dilution from convertible securities and warrants.
What is the Fully Diluted Market Cap (FDV)?
How to Calculate the Fully Diluted Market Cap
Market Cap vs. Fully Diluted Market Cap
What are the Implications of a Fully Diluted Market Cap?
Is the FDV a Reliable Metric for Crypto Valuation?
Conclusion
Before making any investment decision, whether in cryptocurrencies or stocks, you must do your own research (DYOR). It is essential that you gather information on the value of the coin and the potential success it could attain. Compared to traditional finance, there are fewer metrics for measuring these factors in the cryptocurrency industry. One such metric is market capitalization or market cap. Market capitalization refers to the total value of a cryptocurrency over a time period. The market cap is achieved by multiplying the coin’s price by the number of coins in circulation. However, the market cap metric presents some limitations in estimating the future performance of an asset.
Another metric known as the fully diluted market cap (FVD) is often considered as a solution for this limitation. Instead of merely considering coins in circulation, the fully diluted market cap considers the cryptocurrency’s total supply. This article discusses the fundamentals of the metric, how to calculate a coin’s fully diluted market cap, and its importance to crypto investors.
What is the Fully Diluted Market Cap?
The fully diluted market capitalization or fully diluted valuation is a term that refers to the total value of a cryptocurrency, assuming its entire token supply is in circulation. In traditional finance, the fully diluted market cap considers all possible dilutions that could arise from stock options, convertible bonds, warrants, and other sources of equity conversion.
The metric recognized that cryptocurrencies may have outstanding tokens that are yet to be released into circulation. These tokens are often held by development teams to be released according to a schedule announced at launch. Upon release of these coins, the token’s price could be affected adversely.
The fully diluted market cap thus assumes that all the coins have been released and paints a theoretical picture of the coin’s value. The fully diluted market cap does not present a final picture. Instead, the valuation of a coin is more dependent on changes in the total supply or inflation-combating mechanisms.
How to Calculate the Fully Diluted Market Cap
To calculate the fully diluted market cap of a cryptocurrency, two factors must be considered. First, the maximum supply of the coin, and second, the current price of a coin. As such:
FDV= maximum supply of a coin x current token price
Bitcoin, the premier cryptocurrency has a circulating supply of 19,337,018 and a total supply of 21 million.
In calculating the FVD of Bitcoin, one would apply the formula above as follows:
21,000,000 x $28,204.75
Bitcoin’s fully diluted market cap= $592,393,923,560
Market Cap vs. Fully Diluted Market Cap
As mentioned earlier, the market cap is the more common metric for measuring the popularity and success of an asset in the market. When it comes to cryptocurrencies, a high market cap is a sign that a cryptocurrency remains somewhat stable in an otherwise volatile market. This sign of stability also indicates that many crypto investors are willing to invest in the market.
You can arrive at the market cap of a cryptocurrency by multiplying the present price of a single coin by the total amount of coins in circulation.
Market cap = total No. of circulating coins x current token price
In practice, the price of a single ETH token stands at $1461.14, with a total of 122,373,866 ETH coins in circulation. Ethereum’s market cap stands at approximately $178,805,350,567.
The most significant difference between the fully diluted market cap and market cap is that they present different pictures. While the market cap provides an estimate of the current valuation of a coin, the fully diluted market cap offers insight into how the coin might be valued when all its coins are circulating. Further, the fully diluted market cap does not account for the growth of a cryptocurrency. It is a merely factual representation of what a cryptocurrency’s value would look like once there is an increase in supply. Where there is an increase in supply, it triggers token inflation and drives the price of the coin down.
However, cryptocurrencies like Bitcoin and Ethereum introduce mechanisms to combat token inflation. While Bitcoin has a halving mechanism, Ethereum opts for the burning tokens mechanism.
Example: Bitcoin’s Fully Diluted Market Cap
What are the Implications of a Fully Diluted Market Cap?
Now that you know what a fully diluted market cap is, the next step is understanding where the information fits in and how to utilize the metric when making investment decisions. The fully diluted market cap alone merely presents a rough estimate of a cryptocurrency’s performance in the future. However, compared with the coin’s current market cap, issues like inflationary tokenomics come to light.
First, where the difference between the market cap and the fully diluted market cap is high, it often shows that there will be a lot of inflationary pressure on the price of the coin as the supply increases. A high difference is also an indication that a coin is currently overvalued. An increased supply is sure to drive down the price of the coin unless it is in high demand. A classic example of a project that implemented inflationary pricing schemes and failed is the play to earn token Try Hards (TRY). Despite selling up to 36% of its total supply at the launch sale, the TRY price has fallen by 99.74%, and its ROI score is negative and close to -100%.
What about when the fully diluted market cap and market cap are almost equal? Little to no difference between the two metrics often shows that the coin is fairly valued or just slightly undervalued. For instance, where a cryptocurrency has a fully diluted market cap of $ 10 million and a market cap of $9.5 million, it is suggested that the coin is fairly valued. Ethereum is one such coin. While Ethereum has an unlimited supply, it combats token inflation with its token-burning mechanism. Essentially, as more and more ETH tokens are used, balance is achieved by removing a portion of ETH tokens and sending them to an unretrievable wallet, where they can’t be used.
Finally, where there is a difference between the market cap and the fully diluted market cap, but it is low, it indicates that inflation would have little to no effect on the price of the coin. It also means the coin is undervalued, with room for long-term growth.
Is the FDV a Reliable Metric for Crypto Valuation?
The fully diluted market cap is a significant metric for determining a cryptocurrency’s performance in the long term. It is a factor to consider when making long-term investment decisions. Comparing the market cap and fully diluted market cap can show you whether or not a cryptocurrency is a worthwhile investment.
However, it is important to note that the fully diluted market cap does not provide an accurate prediction of a coin’s performance. To make more informed decisions, you must consider the tokenomics of the coin. Factors to consider include:
- The schedule for the release of the future coins;
- The utility of the token;
- Whether or not other factors like staking rewards impact circulation.
Further, a high fully diluted market cap is not the end-all, be-all of a cryptocurrency. In select cases, a cryptocurrency with a high FDV rating may continue to perform well, provided the coin remains in high demand. It might help to also analyze the price history of a coin and understand whether the project has introduced any mechanisms to combat inflation like Bitcoin and Ethereum. Finally, FDV is a useful metric but not a foolproof substitution for thorough research.
Conclusion
The FDV crypto metric can be valuable in determining whether a cryptocurrency is overvalued. A high, fully diluted valuation may suggest that the coin could be negatively affected by inflation in the future. However, it’s crucial to remember that the fully diluted market cap is just one aspect to consider. Other important factors, such as pricing history, industry trends, and future project developments, should also be considered when assessing a cryptocurrency’s potential value.
Fully Diluted Market Cap — How Emissions Kill Tokens in a Bear Market
Fully diluted market cap is the valuation if all tokens — the maximum supply — are in circulation. But why does this matter, especially in the current bear market?
Table of Contents
Unfortunately, those times are over. Let's zoom out.
- Fully diluted market cap vs market cap
- Why fully diluted market cap is so important
- How to trade fully diluted market caps
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What Is Fully Diluted Market Cap vs Market Cap?
Fully Diluted Market Cap
Maximum supply x Current coin price
Sounds easy, so let's look at a few examples:
21 million x $19,169 (at the time of writing) = $403 billion
200 million x $275 (rounded) = $55 billion
Market Capitalization
Circulating supply x Current coin price
Bitcoin:
19 million (rounded) x $19,169 = $364 billion
BNB:
161 million (rounded) x $275 (rounded) = $44.275 billion
Why Use Fully Diluted Market Cap?
- To assess a project's valuation and fair value before and after launch.
- To understand its emissions and gauge potential selling pressure.
- To determine team and market sentiment towards the project.
Let's look at them in-depth.
Assessing a Project's Valuation
Would you say that's a fair value or overvalued?
Understanding a Project's Emissions
For instance, STEPN still has more than 90% of its tokens outstanding as emissions. That means selling pressure on the token will remain for quite some time.
Determining Team and Market Sentiment
Retail traders often ask:
"Is a high fully diluted market cap good or bad?"
The answer: it depends.
A very important rule: fully diluted values are much more important in bear markets than in bull markets.