I just realized a common mistake that many newcomers to the market often overlook – when choosing a coin to invest in, just looking at Market Cap is not enough. Today, I want to share about two extremely important indicators: MC and FDV, what they are, and how to use them to avoid common traps.

Have you ever encountered this situation – a good project, with a tiny MC, but the price still can't go up? The main reason is that you haven't fully understood the relationship between MC and FDV. Let me explain.

Market Cap is the current market capitalization value – calculated by multiplying the circulating token supply by the current price. So, what is FDV? It represents the project's value if all tokens are issued, equal to the maximum supply multiplied by the current price.

The tricky part here is the gap between these two numbers. If MC is small but FDV is enormous, it means there are still many tokens not yet released into the market. For example, a project with an MC of only $1 million but an FDV of $100 million – meaning only 1% of tokens are in circulation. As these new tokens are continuously unlocked and pumped into the market, selling pressure will be very high. Demand isn't increasing, but supply is flooding out, resulting in the price being unlikely to grow long-term.

Conversely, if MC is close to FDV, you can be more confident because token inflation is no longer a major threat. Take Bitcoin as an example, after more than a decade of existence, 95% of the total supply has been mined and is circulating. The total supply of BTC is fixed at 21 million, and the Halving mechanism ensures that every 4 years, the number of Bitcoin issued per block is halved. When supply doesn't increase as fast as demand, BTC's price has room to grow.

Now, how to effectively use FDV and MC when investing? First, you need to analyze the project thoroughly – product, team, investors, roadmap. If these factors are not good, analyzing FDV is meaningless.

Next, compare the project's FDV with other projects in the same niche. If FDV is significantly lower, that’s a good signal. For example, current Layer 1 mainnets usually have FDV ranging from hundreds of millions to a few billion dollars. If a project has a solid foundation but an FDV of only a few tens of millions, it might be undervalued.

Another technique I often use is comparing the current FDV with FDV from previous funding rounds. A typical case is Connext Network, which was last valued at $250 million during its funding round, but after token listing, its FDV dropped to only $28 million – nearly a 9-fold decrease. At this point, investors tend to support the project to regain the FDV they initially invested in. That’s a good signal to buy in.

In summary, understanding what FDV is and how to use it will help you avoid common traps. Always check the token unlock schedule, compare with similar projects, and never forget to do fundamental analysis.