FDV is not a meme, it's a red flag: why traders should pay attention to a fully diluted valuation

In a bull market, profits pour out like a cornucopia, and all projects seem miraculous. It is precisely during these periods of lively speculation that traders often ignore a key metric for evaluating crypto assets. The result? Tokens with astronomical fully diluted valuation (FDV) figures are often completely diluted estimates( of potential market capitalization when all planned coins are in circulation), yet they have laughably low market caps. Should you be worried about high FDV? Let’s figure it out.

What is behind the abbreviation FDV?

FDV is a metric that shows what a project’s market capitalization could be if all planned tokens ever enter circulation. The simple formula: maximum coin supply multiplied by its current price.

Here’s a concrete example. Bitcoin has a maximum supply of 21 million coins. At a price of $96.27K per BTC, this project’s FDV is approximately $1.923 trillion. However, this does not mean Bitcoin is actually worth that much right now — it’s only a theoretical potential.

An important nuance: FDV is not a forecast of future profitability. It’s a conditional assumption based on demand remaining the same and all tokens entering circulation exactly as planned.

What does the maximum supply consist of?

When analysts calculate FDV, they consider three components:

Current circulating supply. The number of tokens currently traded on exchanges and used within the project’s ecosystem.

Locked assets. These tokens are temporarily “frozen” due to vesting conditions or other reasons. Later, they will enter circulation according to the project’s development plan.

Potential issuance through mining and staking. In some blockchain protocols, new coins are created constantly. The maximum supply includes all tokens that can potentially be mined over the entire lifecycle of the project.

Is FDV a tool or a trap for traders?

Among crypto traders, there are heated debates: is FDV a serious analysis metric or just a crypto meme? The answer lies somewhere in the middle.

When FDV is useful

Assessing long-term potential. If you believe in the project’s prospects and plan to hold tokens for years, FDV helps understand how big the project could grow. This is relevant for long-term investors willing to endure volatility.

Comparing projects on equal footing. FDV is a convenient way to compare two crypto projects with different circulating supplies. For example, if one project has issued 10% of tokens and another 90%, comparing current market caps would be unfair. FDV levels the playing field.

When FDV is dangerous

Calculations based on unrealistic assumptions. FDV assumes all tokens will enter circulation without changes. In practice, projects often burn tokens, change issuance strategies, or even shut down. The maximum supply may be just a developer’s good intention.

Ignoring demand and utility. FDV is purely a mathematical calculation. It does not consider whether the project is needed, whether it has real utility, or an active community. A high FDV guarantees nothing if the project has no value.

Token unlocks: when FDV becomes a headache

This is where real risk begins. Imagine: a project has a low circulating supply but a huge FDV. This means that at any moment, a (vesting unlock) event could occur — when billions of frozen tokens become available for trading.

What happens next? The supply sharply increases. If demand does not grow proportionally, the price drops — sometimes catastrophically.

Real lesson: what happened with Arbitrum (ARB)

Let’s see how this looks in practice. On March 16, 2024, a large batch of ARB tokens was unlocked — a total of 1.11 billion coins. This accounted for 76% of the then circulating supply. In other words, the amount of ARB on the market doubled in one day.

What happened? Experienced traders prepared in advance. They knew that the unlock would lead to a spike in supply, so they started exiting positions beforehand. The ARB price was in the range of $1.80–$2.00 before the unlock, but then plummeted more than 50%. At the time of writing, ARB is trading at around $0.21 with a daily change of -2.93%.

This was not just a natural correction. It was classic panic selling during token unlocks, exacerbated by a domino effect: when you see a drop, you rush to sell even faster, which pushes the price down even more.

Data confirms the pattern

Analysts have found a clear correlation: in projects with high FDV and low circulating supply, token unlocks almost always lead to a price crash. This happens for two reasons:

Speculators with a short trading horizon rush to lock in profits before the unlock, expecting a decline.

Panic amplifies downward pressure, creating a self-fulfilling prophecy.

But an important clarification: unlocks are not always responsible for the decline. Other factors — macroeconomics, project news, overall market conditions — can influence the price. A comprehensive analysis is necessary.

The story repeats: old mistakes in new disguises

If you’ve been trading cryptocurrency for more than 3-4 years, this is familiar. Projects like Filecoin (FIL current price $1.56), Internet Computer (ICP current price $4.25), and Serum (SRM current price $0.01) also started with bold promises and high FDV. They attracted colossal attention, prices soared, and then — boom, bear market, and everything collapsed.

Has anything significantly changed since then? The blockchain ecosystem has truly matured, projects compete more fiercely, and traders demand more concrete data rather than just hype. That’s why now money flows into venture-funded projects promising to revolutionize the industry — (DePIN, RWA, and so on).

But this does not mean the story won’t repeat. Good marketing and high FDV are still no guarantee of success.

How to properly interpret FDV?

FDV is not a meme or complete nonsense. It’s a tool that requires correct usage.

Don’t ignore bullish market euphoria. When everyone around is making money, it’s easy to succumb to excitement and forget about risks. Projects with high FDV look especially attractive precisely because low circulating supply creates an illusion of scarcity and quick growth potential. It works both ways: rapid up, rapid down.

Analyze token unlock schedules. Before investing in a project with a large amount of locked tokens, check when they will unlock. If big batches are coming out in the next few months, that’s a red flag.

Check real utility. FDV is just a number. The real value lies in whether the project solves a real problem and has an active community.

Conclusions: conduct your own analysis

FDV is an important indicator but not the only one. A high FDV is neither a death sentence nor a guarantee of success. It’s just one of many factors to consider.

Before investing in a project with an impressive FDV, ask yourself a few questions:

• When will the next large token unlocks happen?
• What is the project’s real utility?
• Does it have an active community and a working product?
• Is the current hype justified or just hype?

Careful analysis and caution are your best tools against crypto market traps. Yes, FDV can be a driver of price surges, but it can also be a trigger for crashes. The choice is yours.