Discover the key differences between Market Cap and Fully Diluted Valuation. Learn how these metrics can help you make informed investment decisions in the world of cryptocurrencies.
In this post, we will explain the difference between Market Cap (MCP) and Fully Diluted Valuation (FDV) and why it’s essential to always consider both values.
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These concepts play a crucial role in assessing the value and potential of cryptocurrencies, yet many investors remain unaware of their specific meanings and methods of calculation. This article explains how MCP is calculated, using examples from popular cryptocurrencies like Bitcoin and Toncoin. Additionally, insights into future value can be derived from FDV, highlighting its significance in the crypto market.
The importance of MCP for investors will be discussed, along with the impact FDV can have on market trends. A comparison of these two values aims to aid in making informed investment decisions. Through concrete examples and tables, all the necessary information will be provided for a better understanding of MCP and FDV in investment strategies.
How is the Market Cap (MCP) of cryptocurrencies calculated?
For those of us following the world of cryptocurrencies, we often find ourselves evaluating how profitable it is to invest in a token (or coin), and we usually first check its Market Cap (MCP).
To understand how MCP is calculated, we must first know the basic formula. MCP is calculated by multiplying the total supply of available tokens by the current token price.
This simple formula gives us insight into the total value of a specific cryptocurrency in the market.
For example, let’s take Bitcoin and Toncoin. If Bitcoin has a total of 19.7 million coins in circulation, and the current price of one coin is $63,000, then the MCP of Bitcoin is as follows:
MCP is an important indicator because it helps us assess the size and growth potential of a particular cryptocurrency. Tokens (and coins) with smaller MCPs have more room for growth, while those with larger MCPs generally have lower chances of delivering significant returns. It is worth noting that there are always exceptions and that MCP is just one of many parameters that need to be considered when evaluating the profitability of investing in a cryptocurrency.
What is Fully Diluted Valuation (FDV), and how is it calculated?
Fully diluted valuation (FDV) is a key term in the crypto world that often confuses many investors. FDV represents the total value of all tokens of a specific cryptocurrency if all were in circulation. Unlike Market Cap (MCP), which only considers currently available tokens, FDV includes those that will be issued in the future. The basic formula for calculating FDV is simple: FDV = Price of one token x total number of tokens that will ever be released. For example, if a cryptocurrency has a token price of $10 and a total of 1 million tokens will be issued, the FDV would be $10 million.
Understanding FDV helps investors better assess the potential future value of a cryptocurrency. While MCP provides insight into the current market value, FDV offers a broader picture of what the cryptocurrency could be worth when all tokens are in circulation.
Why is MCP important for investors?
Market Cap (MCP) is a key indicator that helps investors assess the size and stability of a particular cryptocurrency. When investors analyze MCP, they gain insight into the total market value of all existing coins of that cryptocurrency. This is especially important because a higher MCP often indicates greater stability and less volatility, which can be appealing for long-term investments.
Size Assessment: MCP allows investors to quickly assess how large a specific cryptocurrency is compared to others in the market.
Stability: A higher MCP usually means the cryptocurrency is more stable and less prone to sudden price changes.
Investors often use MCP as part of their investment strategies. For example, some investors prefer to invest in cryptocurrencies with high MCP because they believe they are safer and less risky. Others, however, seek out cryptocurrencies with lower MCP, hoping for higher growth potential. Regardless of the approach, understanding MCP is crucial for making informed investment decisions.
How can FDV affect the future value of a cryptocurrency?
FDV (Fully Diluted Valuation) can provide significant insight into the potential future value of a cryptocurrency. When analyzing cryptocurrencies, it’s essential to understand that FDV considers the total amount of tokens that will ever be in circulation. This can help investors evaluate how the value of a cryptocurrency might rise or fall in the future. Examples of cryptocurrencies with high FDV show how this indicator can impact the market:
- Bitcoin (BTC): Although Bitcoin has a limited supply of 21 million tokens, its FDV is high due to strong demand and limited supply. This can suggest that Bitcoin’s value will continue to rise as it approaches its maximum supply.
- Toncoin (TON): Toncoin has a maximum supply of over 5 billion tokens, with a current FDV reflecting its growing role in the Telegram Open Network ecosystem.
Its FDV is a key indicator of its future growth potential, especially considering the increasing integration into decentralized applications and services relying on TON technology.
A high FDV can indicate long-term opportunities but may also signal higher volatility given the overall market dynamics and project adoption.
Cryptocurrencies with high FDV may have more growth potential, but they can also be more volatile. Therefore, it’s essential to analyze FDV in the context of other factors, such as Market Cap (MCP), the technology behind the cryptocurrency, the team driving the project, and other indicators.
Token Unlocks, Lockup, and Vesting: What Are They and Why Are They Important?
When discussing FDV, it’s essential to mention the concepts of token unlocks, lockup, and vesting, which are closely tied to FDV. In the crypto world, these mechanisms play a crucial role in managing token distribution and impact market liquidity and stability.
- Token Unlocks: Refers to the gradual release of previously locked tokens into circulation, often according to a predetermined schedule. This process is vital to avoid a sudden increase in supply that could lead to a price drop.
- Lockup Period: A period during which certain tokens are not available for trading. This prevents early investors and teams from selling large amounts of tokens immediately after an ICO, protecting the market price.
- Vesting: Represents the gradual unlocking of tokens for founders, teams, or early investors, encouraging long-term engagement and ensuring the stable development of the project.
Projects use these mechanisms to protect investors, stabilize prices, and ensure long-term success, which is key to maintaining trust and stable growth in the cryptocurrency.
MCP vs. FDV Comparison: Which Is a Better Indicator?
When discussing cryptocurrencies, we frequently encounter these two terms. But which of these indicators is better for assessing the value of a cryptocurrency? MCP represents the current market value of all existing tokens, while FDV considers the maximum possible number of tokens that will ever be in circulation.
- Advantages of MCP: Its simplicity and current relevance, as it reflects the real-time value of the tokens. However, its drawback is that it doesn’t account for future token inflation.
- Advantages of FDV: It provides a more comprehensive picture of long-term value. However, it can be misleading if all tokens are never issued or are released far into the future.
Conclusion
If you’re interested in the current value and liquidity of a cryptocurrency, MCP is the better choice. However, if you want to assess long-term sustainability and growth potential, FDV can provide useful insights. Ultimately, both indicators have their place in analysis. The best approach is to use them together to get a complete picture.
Vedran Mijatović