The phrase “fully diluted market cap” is significant for newcomers to the crypto world to acknowledge. This term is often witnessed in the assessment of crypto protocol’s performance.
By understanding the “fully diluted market cap” term, you can make the best decision when choosing a crypto asset to invest in.
What are you waiting for? Find out what a fully diluted market cap means and How it is different from a market cap in this article!
What is Fully Diluted Market Cap?
The fully diluted market cap is the total value of the crypto at today’s price if all tokens are in circulation. By using this capitalization method, it is assumed that the market cap in the future will grow in line with the amount of circulating supply at a given moment.
In some cases, an increase in token supply can occur, leading to market inflation with the oversupply. As a result, the token prices can be dropped. Therefore, many crypto investors are afraid of increasing the supply of coins or tokens in circulation.
However, this market capitalization might serve as a useful tool for assessing the entire value of the crypto asset if any potential influence on the total supply is eliminated.
How does Fully Diluted Market Cap work?
First and foremost, The fully diluted market cap is used to determine whether or not a project’s worth is realistic. If the total value of today’s crypto when all coins have been issued is very high, there will be more tokens or coins in circulation. As a result, inflationary pressures might rise significantly.
Therefore, if the total value of the crypto when all coins have been issued is high, the following factors must be considered:
- When will the next currency or token be released?
- Will the releasing coin’s circulation double in the following year, or will it release a fraction of a percent each year for the next several years?
- How useful is the token to the world, and what kind of growth is expected?
- How is circulation affected by its staking rewards?
Market Cap vs Fully Diluted Market Cap
Before we can grasp the difference between a fully diluted market cap and a market cap, it is advisable to define the Market Cap first.
Market cap or market capitalization is the total value of a cryptocurrency in the market. The market cap can be calculated by multiplying the amount of coins in circulation by their current price.
The market cap is often used to compare the size of a cryptocurrency to the market as a whole and to assess the coin’s popularity. To put it another way, a cryptocurrency with a larger market cap is deemed more popular, and more crypto investors will be more willing to invest in the asset at current prices.
Market capitalization is an important factor in determining the long-term stability of cryptocurrency investment. Assets with considerably lower market capitalization tend to be more volatile than those with much larger ones. Because of this, smaller-capitalization cryptocurrencies are at greater risk of seeing their value fluctuate dramatically.
How to calculate Fully Diluted Market Cap and Market Cap
For clarity, here is how to calculate the fully diluted market cap and market cap.
In reality, a new BTC is minted every time a Bitcoin block is mined. The number of Bitcoins that have been created and are in circulation is nearing 18.8 million as of August 26, 2021. On the other hand, the maximum number of Bitcoins that can be mined is limited to 21 million.
In the case of Bitcoin, the difference between the two types of capitalization is illustrated below.
Market cap = 18 million x current price of 1 BTC
Fully diluted market cap = 21 million x current 1 BTC price
By knowing the concepts of market cap and the fully diluted market cap, crypto traders and investors can assess the overall performance and investment opportunity of a crypto asset in the future.
