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What Is A Fully Diluted Market Cap? How Can I Use It In Crypto Investing?
Table of Contents
What Is Market Cap?
Market cap is a shortened term for Market Capitalisation, which indicates the total value of the cryptocurrency in the crypto market. Market cap is calculated using the following formula.
Market cap = Live Price Per Crypto Asset x Crypto’s Circulation Supply (the total number of the coins minted so far).
For instance, Bitcoin’s market cap can be calculated as follows.
BTC’s Market cap = One BTC’s live price ($23,134) x BTC’s Circulation Supply (19,277,050) = $445,963,398,106
BTC is one of the cryptocurrencies with a mega market cap. It means that its current market cap is higher than $200 billion. Keep reading to learn about different types of market cap in the following section.
Types of Market Cap
Depending on how valuable cryptocurrencies are, their market caps are categorised into Mega Cap, Large Cap and Mid Cap. Let’s learn more about each one below.
Mega Cap
Digital assets with a market cap of $200 billion or higher are considered the largest publicly traded projects by market value.
Mega cap cryptocurrencies include BTC and Ethereum (ETH). At the time of writing this article, on Jan 31, BTC has a market cap of around $470 billion, while ETH has a market cap of approximately $230 billion.
Large Cap
Large market cap cryptocurrencies refer to assets with $10 billion to $200 billion market capitalisation. A few examples of large-cap cryptocurrencies are Tether (USDT), USD Coin (USDC), BNB, XRP, Cardano (ADA), Solana (SOL), and Polkadot (DOT).
Mid Cap
Medium cap refers to cryptocurrencies with a market cap ranging from $1 billion to $10 billion, like Litecoin and Algorand.
Apart from a crypto market cap and its different categories, there is another concept built on the idea of a market cap, representing the total value of all crypto in a network at any given point, i.e., a fully diluted market cap.
Let’s dig into it and see why we need to consider it.
What Is a Fully Diluted Market Cap?
The Fully Diluted Market Capitalisation, also known as Fully Diluted Valuation (FDV), is defined as the total value of the crypto at today’s price if the entire future supply of coins is in circulation.
Quite simply, this indicator reveals what the coin's market cap will be if all possible coins are issued.
How Is Fully Diluted Market Cap Calculated?
In order to calculate any digital asset’s fully diluted market capitalisation, all you need to do is multiply the maximum supply of crypto by its current market value.
Fully diluted market cap = Live Price Per Crypto Asset x Crypto’s Maximum Supply.
Take Bitcoin, for instance. At the time of writing this article, on Jan 31, 2023, each Bitcoin is worth $23,120.17, with a maximum supply of 21,000,000 coins. Therefore, the fully diluted market capitalisation would be roughly 442.8 billion, calculated as follows.
BTC’s fully diluted market cap = 23,120.17 x 21,000,000 = 442.8 billion.
We’ve learned about these two market caps and how to calculate both of them so far.
Let’s take a step further and compare Bitcoin’s market cap with its fully dilated market cap below to get a better understanding of these two indicators.
Fully Diluted Market Cap vs Market Cap
The table below depicts a detailed comparison between market cap and its fully diluted version to let you know all about them. Also, we’ve explained why we need to consider a fully diluted market capitalisation before investing in any crypto project in the section below the table.
Does Fully Diluted Market Cap Matter?
When it comes to investing in any crypto asset, several factors should be considered to determine which cryptos are worth your investment so that you get the most!
A fully diluted market cap could be one of the crucial factors since it gives you an estimate of how popular crypto will be if all of its coins are released.
However, the question is, “Are cryptos with high fully diluted market capitalisations better Investment?”. The answer is detailed in the following section!
Is A High ‘Fully Diluted Market Cap’ Bad?
A high ‘fully diluted market capitalisation’ means a large amount of the token’s supply is scheduled to be released to the market.
Although projects with a high ‘fully diluted market cap’ are generally considered to be well-known crypto investments, it shows the coin will be subject to inflation and, at some point, could be risky.
Summary
Market cap is calculated by multiplying the current amount of coins by the price of each coin, which is completely different from the fully diluted one and doesn’t relate to the future of the crypto asset.
To consider the future of the coin, a fully diluted market capitalisation gives you an estimate of how valuable a crypto project will be once all of its coins are released.
Putting it all together, we now have a good knowledge of these two concepts with their differences.
To get your daily dose of educational courses and technical reviews of the top 1500 coins, keep an eye on Cryptologists, which aims to streamline your investing process with its advanced crypto screening tool.
