Let’s be honest, it’s hard not to get sucked into the latest hot coin in crypto. With so much FOMO (fear of missing out) in crypto, why wouldn’t you be tempted to throw your hard earned $1,000 into the latest meme coin in the blind hope of a 100x return?

A more reliable way to evaluate potential investments lies in understanding market capitalization and fully diluted value. These metrics provide important insights into coin valuations and can serve as a better basis for making informed decisions.

Market capitalization (MC) and fully diluted value (FDV) are fundamental indicators of cryptocurrency value. They help investors assess the size and potential growth of a coin.

Let's start with the core definition:

  • Market Cap (MC): The total value of all mined coins. Calculated by multiplying the number of coins in circulation by the current market price of a single coin.

  • Fully Diluted Valuation (FDV): Expresses the total value of a project by multiplying the current token price by the total number of tokens (both in circulation and in the future).

Analyzing the FDV:Market Value Ratio

In crypto investing, it is especially important to analyze FDV (fully diluted valuation), especially when comparing it to market capitalization. A high FDV:Market Cap ratio indicates that there are a large number of tokens yet to enter circulation, which could significantly dilute the value for existing holders.

For example, a 200:1 FDV:Market Cap ratio means that once all tokens are unlocked, the market will need a huge buying pressure to maintain the current price. If the buying pressure remains constant, the price could fall significantly.

For example, Serum once had an FDV:market cap ratio of 200, with an FDV of $30.3 billion and a market cap of $151.6 million. Such a high ratio means that if the token is unlocked, the price will likely be severely affected unless demand increases significantly. Such a situation would also further increase selling pressure as venture capitalists sell off their stakes.

Investors have become cautious about projects with low circulation and high FDV, preferring tokens with a 1:1 market cap/FDV ratio like PEPE. These tokens may rise in price in the short term, but without widespread adoption and sustained new buying interest, their prices tend to fall in the long term. Therefore, careful analysis of FDV relative to market cap is critical to making informed investment decisions.

Analysis by market capitalization level

Market capitalization levels can provide valuable insights into a coin’s potential and stability. Here’s a quick guide:

Rules of thumb

Lower market caps offer higher risk and reward opportunities, while higher market caps offer stability and lower growth potential. By understanding these levels and employing an appropriate strategy, investors can make informed decisions that match their risk tolerance and investment objectives.

Most coins tend to disappear quickly, but identifying a hyped coin when its market cap is around $100 million can lead to lucrative opportunities as it has the potential to soar to $1 billion. For example:

  • Investing in a coin with a market value of $1 million and holding it until its market value reaches $100 million is equivalent to a staggering 100x return.

  • Likewise, discovering a coin with a market cap of $200 million and holding on to it until it reaches $1 billion can yield a 5x return.

  • Even investing in a coin with a market cap of $1 billion and holding it until it reaches $10 billion can bring a substantial 10x return.

'Sweet spot'

If you're looking for explosive opportunities, you might want to focus on the mid-cap area with market caps between $50 million and $100 million. Within this range, coins are mature enough to reach high eight-digit market caps, but still have significant upside potential. Prices for these coins are relatively good, so you can get a good position.

Currency Analysis

Ok, let’s analyze some coins.

Analyzing Toncoin

Let’s take a look at the performance of Toncoin (TON), and what to expect for its future growth.

Source: Coingecko

This chain is very hot right now, and we recently reported on this project. Let’s compare TON and Solana.

Currently, TON would need to grow 3x from now to reach Solana’s current levels. TON’s FDV:MC ratio is not bad at around 1.47. So, there is good growth potential here, but will it reach Solana’s levels?

To do this, we need to look at the utility of the chain.

Below is a comparison of Toncoin and Solana’s DeFi TVL.

TON’s current TVL is a fraction of Solana’s. Sure, that number can and will grow, but will it reach Solana’s levels? Is this well-founded optimism or pure fantasy? At least the FDV:MC ratio suggests supply isn’t getting out of control.

Even if TON reaches the psychological level of $10, its market cap will be around $35 billion. To exceed $50 billion, TON will need substantial utility and significant DeFi development.

Analyze SAFE

SAFE has impressed us over the past few weeks as it has gained attention from smart money following its unlock.

Source: Coingecko

The current market capitalization is approximately US$985 million, with a fully diluted valuation of approximately US$2.3 billion. The ratio of fully diluted valuation to market capitalization is approximately 2.325. That’s not necessarily ideal, but it’s not out of control either. According to smart money analysis, the number of smart money addresses holding SAFE has increased significantly.

Source: Nansen

The market cap is still below $1 billion, so there is definitely a lot of upside potential. Additionally, SAFE is down 35% from its all-time high set less than a month ago. We believe the coin’s realistic market cap level is somewhere between $3 billion and $5 billion, assuming demand for SAFE tokens is high enough to break through the $3 resistance level.

Analysis of Smart Money Mid-Cap Market Cap

Let’s apply what we’ve learned in this and previous issues to analyze a mid-cap coin. We’ll use Nansen’s Smart Money tool to see which mid-cap coins these addresses have traded in the past 7 days.

Let’s look at the coins that attracted at least $1 million:

  • GROKE

  • THE BAD

Now, let’s move on to market capitalization analysis.

1、GROK

Source: Coingecko

  • FDV:MC ratio: 1.04

Let’s start with GROK, a leading mid-cap coin heavily traded by smart money addresses. Studying the FDV:MC ratio reveals why our thesis holds true: investors favor memecoins because of their favorable FDV:MC ratio.

This metric highlights the appeal of GROK and similar assets, reflecting the strategic preferences of savvy investors. GROK is currently trading about 60% below its all-time high, so the growth potential is definitely there.

2、THE BAD

Source: Coingecko

  • FDV:MC Ratio: 1.053

Another close to 1:1 FDV:MC ratio. It’s interesting that MUBI is getting so much attention. They are really capitalizing on the BRC20 craze. The MultiBit developers are expanding the compatibility of their EVM-to-EVM bridge, now live on Ethereum, BNB Chain, and BounceBit, to support BRC20 and Rune assets.

They are also in the process of introducing more Rune assets and developing additional farming strategies for BounceBit and BitStable. Is the smart money smelling an opportunity here?

What is the ideal FDV:MC ratio?