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.
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