Market Capitalization vs. Fully Diluted Market Capitalization: What's the Difference?

Close look at Market Cap

Understanding Market Cap vs. Fully Diluted Market Cap in Cryptocurrency

As a new investor in the cryptocurrency space, it's essential to familiarize yourself with various financial metrics that can help you assess the value and potential of different cryptocurrencies.

Two important concepts to understand are Market Cap and Fully Diluted Market Cap.

This guide will break down these terms and explain their significance in the world of cryptocurrency investing.

What is Market Capitalization?

Market Capitalization, often referred to as "market cap," is a metric that represents the total value of a cryptocurrency. It is calculated using the following formula:

Market Cap = Current Price of the Cryptocurrency × Total Circulating Supply

For example, if a cryptocurrency is priced at $10 and there are 1 million coins in circulation, the market cap would be:

Market Cap = $10 × 1,000,000 = $10,000,000

Market cap is a useful indicator of a cryptocurrency's size and can help investors gauge its market position relative to others. Generally, cryptocurrencies are categorized into three groups based on their market cap:

• Large-cap: Cryptocurrencies with a market cap over $10 billion.

• Mid-cap: Cryptocurrencies with a market cap between $1 billion and $10 billion.

• Small-cap: Cryptocurrencies with a market cap under $1 billion.

  
  

What is Fully Diluted Market Capitalization?

Fully Diluted Market Capitalization (FDMC) provides a more comprehensive view of a cryptocurrency's potential value by considering the total supply of coins that will ever exist, not just the circulating supply. It is calculated using the following formula:

Fully Diluted Market Cap = Current Price of the Cryptocurrency × Total Supply

For instance, if the same cryptocurrency is priced at $10, but the total supply is capped at 2 million coins (with 1 million currently in circulation), the fully diluted market cap would be:

Fully Diluted Market Cap = $10 × 2,000,000 = $20,000,000

This metric is particularly important for investors to consider because it accounts for the total potential value of a cryptocurrency if all tokens are released into circulation. It can provide insights into inflationary aspects and the long-term value proposition of a project. Token unlocks can catch inexperienced investors off-guard.

Why Do These Metrics Matter?

Understanding the difference between market cap and fully diluted market cap is crucial for making informed investment decisions:

• Investment Strategy: Market cap can help you identify the size and stability of a cryptocurrency, while FDMC can indicate potential future dilution and the total value of the asset.

  
  

• Risk Assessment: A large gap between market cap and fully diluted market cap may signal that a cryptocurrency has significant amounts of tokens yet to be released, which could impact future prices.

  
  

• Comparative Analysis: These metrics allow investors to compare different cryptocurrencies more effectively, particularly when evaluating projects with varying supply dynamics.

  
  

Summary

In summary, both market cap and fully diluted market cap are essential metrics for evaluating cryptocurrencies. While the market cap gives you a snapshot of current value based on circulating supply, fully diluted market cap offers a glimpse into the potential future value of the asset. By understanding these concepts, you can make more informed decisions as you navigate the exciting world of cryptocurrency investing.

Tools and Information:

Coin Market Cap (Token Unlock Schedules)

https://coinmarketcap.com/token-unlocks/

Live Coin Watch

https://www.livecoinwatch.com/

Disclaimer: The information provided on this website and blog is for educational and informational purposes only and should not be construed as financial advice. Readers are encouraged to engage in their own research and verify information using other reliable and scholarly sources. Access Equity DeFi, LLC is not liable for any losses or damages incurred as a result of using the information found on this website.