What determines the real value of cryptocurrencies: FDV versus market capitalization

When you invest in a cryptocurrency project, you encounter two key metrics: fully diluted valuation (FDV) and market capitalization. These two indicators are often confusing in the crypto sector, but they reflect completely different aspects of a project’s value. Understanding the difference between FDV and market capitalization is the first step toward making more informed investment decisions in cryptocurrencies.

Understanding FDV in Cryptocurrency Investing

Fully Diluted Valuation (FDV) represents the potential market value of a crypto project if all tokens, including those not yet issued, were in circulation. It’s similar to valuing a house that is still under construction. You see the current structure but understand that new rooms will be added in the future, affecting the overall value.

Unlike circulating supply (the number of tokens available for trading now), FDV accounts for the total number of tokens — both existing and those yet to be released through transfer rights, staking, or mining mechanisms. Ripple gradually releases XRP, Tezos rewards participants via staking XTZ, and Bitcoin incentivizes miners to secure the network through new emissions. All these mechanisms mean that the future token supply can expand significantly.

Therefore, for investors, FDV answers the question: what will the project’s value be at full dilution? This is necessary for assessing long-term potential and dilution risks.

How FDV is Calculated: Formula and Practical Examples

Calculating FDV is actually quite simple. The basic formula is:

FDV = Total number of tokens × Current price per token

Let’s break down the components:

• Total number of tokens — the maximum number of tokens that will ever be issued by the project. This includes already circulating tokens, locked tokens, reserved tokens for future release, and tokens not yet created.

• Current token price — the market value at the time of calculation, which constantly fluctuates based on supply and demand.

For example, suppose a new cryptocurrency XYZ has a total supply of 1 billion tokens, with 500 million in circulation, and the current price is $0.5:

FDV = 1 billion tokens × $0.5 = $500 million

At the same time, market capitalization is calculated as:

Market Cap = Circulating tokens × Current price = 500 million × $0.5 = $250 million

This shows that FDV ($500 million) is twice the market cap ($250 million), indicating a significant potential for dilution in the future.

FDV vs. Market Capitalization: Real Data

Now, let’s look at real-world examples from the cryptocurrency market.

Bitcoin (BTC) — the most capitalized crypto asset. As of January 2026:

• Market Cap: $1.766 trillion
• FDV: $1.766 trillion
• Current price: $88,380
• Max supply: 21 million tokens

Interestingly, Bitcoin’s market cap is almost equal to its FDV because most of the 21 million tokens are already in circulation, and the issuance schedule is well known.

XRP (Ripple) shows a different picture:

• FDV: $190.67 billion

Here, FDV reflects the full potential of the project assuming all locked tokens are released.

NEXO — a decentralized lending platform:

• Market Cap: $958.60 million
• FDV: $958.60 million
• Total tokens: 1 billion
• Circulating tokens: 1 billion

In this case, nearly all tokens are already issued, so market cap equals FDV.

Four Scenarios: How to Interpret the Relationship Between FDV and Market Cap

The ratio between FDV and market capitalization indicates the project’s investment profile:

Low market cap, high FDV: The project has a low current valuation but a large potential gap between circulating and total supply. It might look like a “hidden gem,” but requires careful evaluation — future dilution could lead to a decrease in token price.

High market cap, low FDV: The current valuation is high, and future dilution is minimal. This could indicate an overvalued project or one that has already gone through intense emission phases.

Low market cap, low FDV: The project shows weak indicators both in current valuation and potential. It might be a new, problematic project with low prospects for success.

High market cap, high FDV: The project has a strong current valuation and high growth potential. Usually a sign of a mature, successful project, but investors should ensure that high FDV won’t cause future price declines due to dilution.

Investor Strategies: When to Rely on FDV

To make informed investment decisions in cryptocurrencies, consider FDV alongside other factors.

Use FDV for long-term analysis. FDV shows the maximum potential of the project if all tokens are issued. It helps assess long-term dilution risks.

Compare FDV and market cap. A large gap indicates significant future dilution. Use this to estimate potential price decreases upon full emission.

Consider the token release schedule. FDV assumes all tokens are issued immediately, but in reality, emission can be stretched over years. The longer the release period, the lower the risk of sharp dilution.

Don’t ignore current market cap. It reflects the current market valuation, while FDV is a theoretical scenario. Both metrics are needed for a complete picture.

Risks of Relying on FDV When Choosing Crypto Assets

Despite its usefulness, FDV has significant limitations, and blind reliance on this metric can lead to errors.

FDV assumes static price. The formula presumes the token price remains unchanged upon new token issuance. In reality, increasing supply usually exerts downward pressure on price, especially if demand does not grow proportionally.

FDV does not account for emission dynamics. Many projects release tokens unevenly. A small flow of new tokens may not significantly impact price, but mass issuance over a short period risks a price collapse. FDV averages this risk and misses important nuances.

Ignoring market factors. FDV focuses solely on supply and price numbers, ignoring competition, regulatory changes, technological advancements, or the project’s commercial viability.

Tokens may be burned or frozen. A project might decide to burn some tokens or lock them indefinitely, reducing the actual total supply. FDV does not reflect such scenarios.

Market perception changes. Even if FDV remains mathematically constant, market perception of the project can change dramatically, influencing the price regardless of emission models.

Proper Approach: Using FDV as Part of a Comprehensive Analysis

FDV is a valuable tool for assessing the long-term potential of a cryptocurrency project, but it should not be used in isolation. Smart investors consider FDV alongside:

• Market capitalization — for understanding current valuation
• Token release schedule — for assessing dilution speed
• Team and project history — for success prospects
• Technology and use cases — for practical value
• Competitive position — for market potential

By combining these indicators, you get a complete picture of the crypto asset and can make more informed decisions. In this context, FDV becomes a useful element of analysis, not the sole criterion for investment.