Recently, when researching crypto projects, I found that many people judge based solely on market cap, but they overlook a very important indicator—FDV (Fully Diluted Valuation). This concept may seem complicated, but understanding it is really key to making investment decisions.

Simply put, FDV is the total value of a project assuming all tokens are released into the market. In contrast, market cap only reflects the value of tokens currently in circulation. For example, when buying a house, only looking at the completed part is not enough; you also need to know how many more rooms will be built in the future to assess the true cost. The same logic applies in the crypto space.

Calculating FDV is actually straightforward: total supply multiplied by the current token price. For instance, if a project will issue a total of 1 billion tokens, and the current price is $0.50, then the FDV is $500 million. But if only 500 million tokens are in circulation now, the market cap is only $250 million. It looks cheap, but beware of the dilution effect that could come from a large release of tokens in the future.

Many projects adopt gradual release mechanisms. Bitcoin incentivizes miners through mining rewards, XRP has a vesting schedule, and XTZ uses staking rewards for participants. These all mean more tokens will enter the market in the future. Therefore, investors must understand the difference between FDV and market cap—FDV looks at long-term potential, while market cap reflects the current reality.

Taking recent data as an example. Bitcoin’s current price is $78,410, with a total supply of over 15.7k coins, and the FDV is about $1.57 trillion. The market cap is also close to this number, indicating that Bitcoin’s token release is basically complete. In contrast, NEXO’s situation is different: the circulating market cap is $908 million, but the fully diluted valuation is also $908 million, meaning most tokens are already in circulation.

But there’s a trap to watch out for here. FDV assumes the token price remains unchanged, but in reality, increasing supply usually drives prices down. Also, FDV completely ignores actual factors like market competition, regulatory changes, and project progress. Some projects may have a high FDV, but if a large amount of tokens are unlocked, the price could plummet, ultimately bringing down the FDV figure.

So, FDV is indeed a useful reference indicator, but never rely on it alone. When making investment decisions, you should also consider the project’s token release schedule, team strength, market prospects, and other factors. A high FDV doesn’t necessarily mean a good opportunity, and a low FDV isn’t always a hidden gem. The key is to understand what these numbers really mean and not be fooled by surface figures.