Chinese domain market in 2016.
The Chinese domain market is a wild beast, and it has witnessed an explosive growth in 2015.
While there are fortunes to be made in any emerging market, domain investors are advised to proceed with caution.
As with any investment market, past performance does not guarantee future results.
In a well-researched article for Domain Name Wire, domain investor Joseph Peterson weighed the potential of a “pump and dump” scheme in the Chinese domain market of domain “chips.”
As with every market that relies on a skyward “bubble,” investors with no experience in the psychology of trading can risk suffering substantial losses, if they don’t withdraw their position in time.
With domains, there is no safety valve in place, unlike with the trading of stocks, bonds and futures.
On Monday, stock markets around the world tumbled as worries over China’s economy and recent close-call to a crash, spooked investors. The Shanghai Composite lost 6.9%, while the Shenzhen Composite lost more than 8%; trading was temporarily halted for the first time ever.
There are two schools of thought regarding such loss trends: ride the storm, or retreat from it. In the case of the Chinese domain market, many are viewing this massive loss of Chinese stock market trading as an opportunity to reclaim assets at lower prices.
However, the accumulation of domain names that are known as “chips” is not directly linked to the full spectrum of the Chinese economy. In other words, the number of Chinese domain investors heavily vested in domains, is relatively small, compared to the overall number of China’s investors.
A strong Chinese economy can generate massive amounts of wealth, and those keen on diversification may channel some of their earnings into domain names.
Those trading “chips” typically leverage small chunks of money, which can become more important to recap via domain liquidation, if the Chinese economy drops substantially. This can lead to an oversupply of domain names, and the sharp drop in individual pricing for those “token” domains.
In our opinion, the Chinese domain market is slated for a correction in 2016. Whether that happens early on, or later this year, is a matter of global economics, including the price of oil and the usual cache of politics in the middle east and Asia.
China’s economy is an intriguing market, and domain investors are therefore advised to tread unknown waters very carefully.
chip .com’s and .net’s both up at this time, especially the .nets.
I figured they would be getting clobbered today.
Maybe money moving from the market, to domains.
See what happens in a week.
Don – Happy New Year. Reactions to any market aren’t instant, and for the reasons explained above, the close study of the Chinese domain market is needed. Curve to follow: http://www.benmi.com/lang/en
1 thing that helps cushion the price of Chinese-style domains is the fact that they are traded by 2 largely disconnected populations – 1 inside China (which might be aware of the Chinese stock market) and 1 outside China (which will probably remain unaware of the Chinese stock market).
When 1 group reacts, the other group does nothing. So this tends to mean a slower overall response and less day-to-day volatility. Domain prices in China might decrease, yet domainers in the West wouldn’t get the memo; they’d continue to buy them up as usual for some time – perhaps long enough for Chinese buyers themselves to get over the initial recoil.
When we saw the Chinese stock market take a nose dive months ago, domain trading wasn’t really affected. At the time, I explained things this way. Think I even said the Western domain market for Chinese domains acts like a bank of smoothing capacitors – muting the ups and downs through time delays. Not an analogy that will mean much unless you’ve built electrical circuits, but it’s what sprang to mind.