In the context of many projects about to unlock a large amount of Tokens today. Investors are increasingly aware of the impact of fully diluted capitalization on price movements. So what is FDV and what is its impact when investing in the Crypto market? Let’s explore the following article with Learn Crypto Trading to understand better!

Learn about the concept of FDV

Fully Diluted Market Cap ( FDV ) is the market cap when all tokens are unlocked.

For example: BTC price is $66,695, total BTC supply is 21,000,000 => BTC FDV = $66,695 * 21,000,000 = $1,400,246,463,000.

Different from market capitalization (Market cap – MC), capitalization of tokens in circulation. FDV usually represents the current valuation of the project. FDV is important because the gradual unlocking of tokens in the future makes the initial valuation inaccurate and highly volatile.

Investors are increasingly aware of the impact of large token unlocks. Shows the importance of FDV on price. We will learn the role and influence of FDV and how to turn FDV into an effective investment tool.

In addition, learning about other knowledge such as Jupiter Airdrop and Airdrop Token is necessary if you want to better understand Crypto exchanges. Because this is the knowledge that will help you invest better and make better decisions.

See more: Token investment: Increase and optimize profits

What is dilution pricing in the Crypto market

Fully Diluted Valuation ( FDV ) is the total value of all tokens in a project. Including tokens that are locked and have not yet been released to the market. The formula to calculate FDV is as follows:

FDV = Market price x Total supply

FDV helps determine the true total value of a project if all tokens are 100% unlocked.

For example, an investor buys Token A at $5 with a market capitalization of $50M and FDV of $1B. When all tokens are 100% unlocked without the price of Token A changing, the project’s capitalization will increase but investor profits will not increase.

The role of FDV in investment projects

So what special role does FDV play in the investment process? Some typical roles mentioned are as follows:

Crypto Trading Volatility

This section will illustrate the difference in volatility between large and small-cap tokens through an example:

• Let’s say token X costs $5, equivalent to an FDV of about $500M. When FDV increases by 100%, i.e. FDV reaches $1B, the price of token X will increase to $10.
• If the FDV of token X continues to increase by 100%, i.e. the FDV reaches $2B, the price of token

This shows that capitalization represents the value of an asset. When capitalization increases, the amount of money needed to buy the same amount of assets also increases. Therefore, large-cap assets are generally less volatile than small-cap assets.

FDV can absorb Crypto market cash flow

The ability to absorb cash flow or capitalization of a project is the ability to withstand selling pressure in the market at a certain time. To make it easier to understand, the capitalization value of a project will decrease less when under strong selling pressure. Like unlocking tokens for investors in Private Sale, Seed Rounds, and Public Sale,…

For example, at the end of December 2020, a large amount of Solana’s SOL tokens were unlocked for sales rounds such as Seed Sale, Founding Sale, etc. This creates large selling pressure and can lead to downward price fluctuations. significant for SOL.

Trading volume of Crypto projects

Trading volume and capitalization of a project are two independent data. However, there is a close connection in project evaluation. Trading volume represents liquidity or the level of trading interest in the market for an asset.

Factors affecting FDV

A big mistake that many people new to the Crypto or financial market often make is when BNB’s capitalization increased from $80B to $88B. This does not mean there is an additional $8B poured into BNB.

To understand better, let’s review the formula for calculating the market capitalization of a project:

Market capitalization = Circulating supply x Market price of Token/Coin

In this formula, market capitalization depends on two variables:

• Circulating supply: If the price of the Token/Coin remains the same but the number of tokens supplied to the market increases. Since then, market capitalization has continued to increase.
• Market price: This is the price at the most recent order matching of a Crypto project.

How to use FDV effectively in investing

Crypto projects often provide basic information such as funding valuation, funding amount, and tokenomics. If projects do not disclose this information, it is a “warning” about the level of risk.

Calculate the purchase price of FDV when the valuation is known

For example, $STRK raised capital at valuations of $80 million, $240 million, $1 billion, and $8 billion, respectively. Along with the total supply of $STRK tokens is 10 billion. The fund buys $STRK at $0.008, $0.024, $0.1, and $0.8/STRK.

Based on the market price, investors can compare the current price with the fund’s purchase price. If the market price is much higher than the fund’s purchase price there are still many tokens that have not been unlocked. From there, investors need to consider before investing.

On the contrary, if the market price is lower than the fund’s purchase price, the investor will bear a loss. In this case, selling pressure is usually less.

Predict price behavior after knowing the capital call

For more detailed analysis, when we have enough information about the amount of capital raised from each round, we can calculate the proportion that each fund’s investment round accounts for in the project.

For example, $STRK allocates 18.17% to investors as follows:

• The seed round raised $6 million in capital at a valuation of $80 million. From there, 750 million $STRK was purchased (7.5% of total supply).
• The latest round raised $100 million in capital at a valuation of $8 billion. From there, you can buy 125 million $STRK (1.25% of total supply).
• The two rounds of $240 million and $1 billion have not been announced but have a proportion of 9.42%.

From this information, we can see that the seed round accounts for a very large proportion. They have high weights and significant profit potential for the capital they invest. This can help predict price behavior when their tokens are unlocked after a long period of investment.

See more: Opening MEXC global account in detail, quickly

Other factors outside of FDV

So are there any external factors when it comes to market capitalization? We can see the following factors worth mentioning:

Crypto market trends

“The market is like a boat. When the water rises, the boat rises. When the water goes down, the boat goes down.” Token price fluctuations are greatly influenced by market fluctuations. When the market is in an increasing phase, other projects also grow in capitalization (MC – Market cap), causing the remaining projects to grow as well. At this time, the FDV index may lose its influence when many buyers and token holders do not intend to sell.

Affects other transactions on Crypto

For example, in $STRK’s seed round, they bought at $80 million FDV. However, they had to wait a long time when they saw the following capital raising rounds valued at up to $1 billion and $8 billion. At this time, they will use OTC trading to sell their allocated tokens. The existence of the market before the token launch not only affects the analysis of the investment price but also the price of the token when released to the public.

Understand how your opponent plays?

Keep in mind that there are many other parties involved, not just the fund. Analyze how many tokens each party has unlocked. Then see if they tend to sell tokens for a specific purpose.

Conclude

The above article has provided you with information about FDV on the Crypto exchange. Hopefully, this article will help everyone better understand the market capitalization and fully diluted valuation (FDV) of a project. In addition, the above article also provides important insights to evaluate the capitalization of a project. Please continue to follow Learn Crypto Trading to learn more useful knowledge!

FAQs

Is high FDV always better?

Unnecessary. A high FDV may indicate the project has too many tokens in circulation. Leading to market saturation and a decrease in price of each token unit. Focus on project fundamentals and how to use the token supply effectively.

Should FDV be completely ignored?

No, FDV can give us an overview of the project’s potential market size in the future. However, you should not completely depend on FDV when making trading decisions. Use FDV as part of your overall research, along with other data points.

Is it safe to trade tokens with high FDV and low market capitalization?

These projects may have higher risk because they rely so heavily on future token issuance to achieve their FDV potential. Please conduct transactions carefully and prioritize projects with a solid foundation. It has practical applications and a growing user base.