Understanding Fully Diluted Value (FDV)
Fully Diluted Value (FDV) is a metric investors consider when evaluating a company or cryptocurrency project.
It provides insights into the tokenomics or overall value of a project.
To determine the FDV of a cryptocurrency, you need to multiply the total supply of coins by the price per coin, which requires specific research on the cryptocurrency in question.
Market Cap vs. Fully Diluted Value
Market capitalization represents the value of a cryptocurrency based on its circulating supply.
However, there may be additional tokens that can enter circulation in the future.
Cryptocurrency projects often withhold coins from public sale to be released later for development or marketing purposes.
Considering the FDV helps gauge the potential impact if all those coins were released into circulation simultaneously at the current market price.
This provides an indication of the potential price per share or token if all else remains constant. Most cryptocurrency projects announce their maximum supply and the timeframe to achieve it.
Fully Diluted Value
The concept of FDV can also be applied to traditional trading or stock markets.
In this context, fully diluted value refers to the amount an investor would pay to acquire all outstanding stock, including any stock that could potentially be issued, such as options and convertible debt.
Understanding fully diluted value is important for investors as it provides a comprehensive view of the company’s future, aiding in assessing the favorability of an investment.
Options and Convertible Debt
Options and convertible debt are two sources of stock that impact the fully diluted value.
Options are contracts granting the holder the right to purchase shares at a predetermined price in the future.
Including all options as current stock determines the fully diluted value of the company.
Convertible debt, on the other hand, allows debt holders to convert their loans into shares at a predetermined price.
Whether FDV is a strong metric to consider remains a subject of debate.
Some investors view it as a valuable metric, while others consider it misleading, particularly in the context of cryptocurrency investments.