Trying to determine the future value of a cryptocurrency can be difficult, especially if it is a new token. However, metrics like fully diluted market cap can help you make the best decision when it comes to investing in crypto.
A fully diluted market cap in crypto is the total value of crypto at today's token price if the total supply of cryptocurrency were in circulation. To determine the fully diluted market cap, multiply the token’s current value by the total supply of cryptocurrency.
A cryptocurrency’s fully diluted market cap is just one piece of the puzzle when it comes to determining the overall risk and value associated with buying crypto.
Not to be confused with market cap or circulating supply, a fully diluted market cap is an estimate of what the market cap will be once all the tokens in a project are in circulation. In other words, you are predicting the future market cap of a cryptocurrency.
Fully diluted value (FDV) = Maximum supply of a tokens x Current market price
To calculate the fully diluted market cap of a cryptocurrency simply multiply the token’s individual value by the maximum supply of tokens.
For example, if there are 100,000 tokens total in a project, and the token price is at $5.00 each, multiply 100,000 tokens by $5.00 to determine the fully diluted market cap of $500,000.
Determining the fully diluted market cap of a cryptocurrency can be a good factor to help you decide if a cryptocurrency might be a good investment or not, however, there are some things that the fully diluted market cap does not take into consideration, including:
In addition to these factors not being taken into consideration, a fully diluted market cap does not take into account the effect that an increase in token supply will likely have on the individual token value.
Rather, if a token has a circulating supply of 50,000, and a token price of $5.00, it’s assuming that the token price will remain at $5.00, even once the maximum supply of 100,000 is in circulation. However, this is generally not the case.
That being said, a fully diluted market cap cannot be the sole metric used to determine if a cryptocurrency project will be a good investment or not.
There are several other factors that play a role in the overall value of cryptocurrency, and the fully diluted market cap is just one of them. To learn more about how to do your own research in crypto, make sure to check out our guide.
Also, if you are considering investing in crypto, consider trying one of the safest investment strategies, known as the dollar-cost averaging method.
