A High Fully Diluted Valuation (FDV) To Marketcap Ratio Is Much Worse Than You Realize! Here’s Why:

Newbies in crypto often don’t realise quite how important Fully Diluted Valuation (FDV) is. They often don’t realise the fact that the marketcap of a crypto is almost always vastly greater than the liquidity — and then further fail to understand that the although the fully diluted marketcap of a crypto may be say two or three times the marketcap, it’s often twenty or thirty times (often vastly more) more than the liquidity.

Consider a crypto token with say a $1,000,000,000 — what’s the actual liquidity of the token? This depends on the specifics of the exact token of course, but you can be damn sure that the liquidity is (typically) vastly less than the marketcap.

Now consider if only about 10% of the total supply of tokens has been released to the market, such that fully diluted marketcap is $10,000,000,000.

If the liquidity of this token is say 10% of the marketcap (often a fair guesstimate) then although the ratio of FDV to marketcap may be ten, the ratio of FDV to liquidity will be a hundred.

When these additional tokens will be unlocked (how many and how often etc) is of course critical, but so now, hopefully, do you realise just how many more buyers there will need to be in the market (given the propensity of early investors, founders, foundations etc generally want to sell) to absorb not just ten times the amount of tokens, but one hundred times the liquidity of the tokens.

Leave a Reply

Your email address will not be published. Required fields are marked *