When starting with crypto, I usually only look at the price and market cap, then later realize that’s not enough. Today I want to share about two indicators that I find very important when evaluating a token – Market Cap and Fully Diluted Valuation. Understanding these concepts will help you avoid mistakes in investing.

First, let’s talk about Market Cap. This is the market capitalization value of the tokens currently in circulation. The calculation is very simple: multiply the number of circulating tokens by the current price. The good thing here is it only considers tokens that are actually in people's hands, ignoring locked or burned tokens.

So what is FDV? It’s the value if all tokens are issued, calculated by multiplying the maximum supply by the current price. This is very important because it shows you the full picture – how much the project would be valued at if no tokens were left unissued.

What is the main difference between these two indicators? When MC is low but FDV is high, it means there are still many tokens not yet in the market. This is a sign of inflationary pressure – as new tokens are continuously pumped out, the price can be pushed down if demand doesn’t increase accordingly. Conversely, when MC is close to FDV, you can be more confident because most tokens are already in circulation.

Let me give you a specific example. Imagine a project with an MC of only $1 million but only 1% of tokens are in circulation – that means its FDV could reach $100 million. Sounds like huge profit potential, but in reality, it’s very risky. As the remaining 99% of tokens are gradually released, the supply increases rapidly while demand may not keep up, resulting in downward pressure on the price.

That’s why, when investing, you need to look into the project’s token unlock schedule. Knowing when tokens will be released helps you plan smarter investments.

There’s a different point of view when it comes to Bitcoin. After more than a decade of operation, over 95% of Bitcoin’s total supply has been mined and is in circulation. The total supply is fixed at 21 million, and the Halving mechanism ensures that every 4 years, the issuance of Bitcoin is cut in half. This is why Bitcoin can increase in value – supply grows slowly, but demand increases faster.

Now, how to use FDV effectively? First, you must analyze the project’s fundamentals – look at the product, team, and whether the investors are good. If the fundamentals are weak, analyzing FDV won’t mean much.

If the project has solid fundamentals, compare its FDV with other projects in the same field. For example, current Layer 1 blockchains have FDVs ranging from hundreds of millions to a few billion dollars. If the project you’re looking at has a much smaller FDV than its competitors, that could be a good sign – the project is undervalued.

Another way is to compare the current FDV with previous funding rounds. For example, Connext Network’s last funding round valued it at $250 million. But when the token launched, its FDV was only about $28 million, nearly a 9-fold decrease. When FDV drops significantly compared to previous funding rounds, investors often tend to support the project to regain the FDV they initially invested in. This is a pretty good signal to buy in.

In summary, understanding the relationship between MC and FDV will help you choose the right timing for investment. Not every project with a low MC is a good opportunity – you need to look deeper into FDV and inflationary pressures. Doing this carefully will help you avoid many traps in the crypto market.