The true impact of FDV in the crypto market: Why do high-valuation projects frequently experience "car crashes"?

When it comes to the traps in the crypto market, perhaps nothing is more effective at harvesting retail investors than the combination of “high fully diluted market cap with low circulating supply.” This is not bragging — from the brutal plunge of Arbitrum (ARB) to the collective crash of projects supported by VC funding, the data is in front of us: when the token unlock wave hits, projects that seem to be “chosen by heaven” often experience consecutive limit-downs.

What exactly is FDV? Why are traders afraid of it?

Fully Diluted Valuation (FDV) sounds very professional, but the principle is actually simple: multiply the current token price by the total planned issuance of tokens. The formula is just one line:

FDV = Current Token Price × Total Supply

It looks easy, but there are big pitfalls behind this number. It assumes all planned tokens will eventually be in circulation and that market demand can support this volume — which is often a fantasy in reality.

Take Bitcoin (BTC) as an example: with the current price of $96,030 and a total supply of 21 million, Bitcoin’s FDV reaches approximately $1.918 trillion. Theoretically, this number reflects how much Bitcoin would be worth if all coins entered the market. But here’s the problem — such assumptions are often overly optimistic, especially for new projects that haven’t yet developed a mature ecosystem.

Circulating supply vs. fully diluted: why can these two numbers be misleading?

This is the most overlooked part. Market cap only considers circulating supply, while FDV looks at the “ultimate supply.” Simply put:

• Market Cap: Only counts tokens that are already tradable on exchanges and markets
• FDV: Includes locked tokens, future mined tokens, and all planned tokens

How big is this difference? Imagine a new project where circulating supply accounts for only 10% of the total supply; then the FDV could be 10 times the market cap. Looks cheap, but in reality, it’s a ticking time bomb.

ARB’s “blood lessons”: when token unlocks turn into slaughter

If you wonder why FDV is not just a joke, the March 2024 Arbitrum (ARB) event is the best textbook.

At that time, Framework Ventures co-founder Vance Spencer issued a warning: this was the first time the crypto market truly realized the power of “token unlocks.” On March 16, 2024, 111 million ARB tokens were unlocked due to the end of the vesting period — accounting for 76% of the circulating supply. In other words, the tradable ARB on the market instantly doubled.

What was the result? ARB’s price plunged from the $1.80–$2.00 range, ultimately dropping over 50%. The death cross on the chart was clearly visible, and the RSI entered an extreme oversold zone. Although some blame the poor performance on ETH or the uncertainty of spot ETFs, the undeniable fact remains: panic selling and anticipatory reduction of positions created a self-fulfilling prophecy.

When seasoned traders smell token unlocks, they tend to exit early. This causes prices to fall first, retail investors see the decline and continue to sell, further accelerating the drop. It’s like a domino effect — once the first piece falls, the rest can’t be saved.

Data speaks: why are high-FDV projects prone to “tripping”?

Dune analyst @dyorcrypto specifically studied this phenomenon and created a VC funding dashboard tracking the performance of high-FDV projects. The data is sobering: High FDV + imminent unlocks = high probability of a sharp price drop.

What’s the reason? Two words: expectation and panic.

Traders aren’t fools; they start calculating as soon as they see the token unlock schedule: Will the new supply push prices down? Can market demand absorb it? Most of the time, the answer is no. So they exit early, triggering other traders to follow suit, leading to a total collapse.

Filecoin, ICP, Serum: where are the “stars” of yesterday now?

Remember those projects that once shined brightly?

• Filecoin (FIL): a hotly funded project that promised to revolutionize storage, with a high FDV. Now, FDV is only $3.05B, with a price of $1.56
• Internet Computer (ICP): touted as “decentralized cloud computing,” now FDV is $2.33B, price $4.25
• Serum (SRM): a DeFi star project, now FDV is only $12.99M, price dropped to $0.01

Their common fate: the combination of high FDV and low circulating supply ultimately couldn’t hold up. When fundamentals fail to keep up with hype, token unlocks happen, or market sentiment reverses, these projects become slaughterhouses.

Is FDV really just a “joke”?

People who dislike FDV say it’s just a meme — only looking at potential, ignoring reality. Supporters argue it reflects long-term value. The truth lies somewhere in between.

The real issues with FDV are:

1. Overly optimistic assumptions: assuming all tokens will circulate, but projects may burn tokens, change issuance plans, or fail
2. Ignoring adoption status: no matter how high the FDV, if no one uses the project, it’s doomed
3. Creating false scarcity: low circulating supply + high FDV = illusion of inflated prices
4. Unlock schedule bombs: future token releases will continue to pressure prices downward

This isn’t to say FDV is completely useless. For long-term investors, it can indeed show the project’s growth potential. But for traders, high-FDV projects are asking: Are you ready for the token unlock wave?

How to avoid being fooled by FDV?

1. Compare market cap and FDV multiples: the higher the multiple, the greater the risk
2. Check the token release schedule: when will how many tokens unlock? This is crucial
3. Assess project fundamentals: no matter how high the FDV, real usage is needed to support it
4. Monitor on-chain data: TVL, user growth, activity — these are more real than stories
5. Avoid blindly following trends: the era of “VC-backed DePIN projects” being an automatic win is over

Final words

FDV isn’t a scam, but it’s definitely a double-edged sword. It can help you see the project’s potential, but it can also trap you in false prosperity. The key is not to treat FDV as the only indicator — that’s just asking to be harvested.

In this bull market full of high-FDV projects, the smartest approach is: trust data, beware of token unlocks, and do your homework. It’s that simple.