Here’s the million dollar question, okay for most it’s the tens of thousand dollar question but let’s get a bit more dramatic to keep things exciting. It’s no secret that buyers in China were buying LLLL .com domain names last year at a stronger clip than ever before.
Then 2016 came and now there is speculation of a massive flood of LLLL .COM’s back into the market as Chinese investors dump these just as fast as they bought them.
I’ve never been a big LLLL.com investor, I’ve always liked words, and really like one and two-word .COMs. I have little skin in the LLLL .COM game outside of a handful of names, but I’m still in for north of $20k so I do care what happens, but either way I’m not predicting anything life-changing for me personally one way or another.
Still I’m scratching my head now and wondering, could 2016 be the year to buy LLLL .COM’s at a huge discount as fear spreads? Or is this the beginning of a major devaluation in what was just a few short months ago one of the hottest category of domain names out there.
What do you think? Is this the year to buy LLLL .COMs or is now time to get rid of them and replace with one and two-word .COM’s? I wish I had all the answers but I don’t – what do you think, comment and let your voice be heard!
What drove growth in prices? Attracting more and more buyers. Why did they buy? They saw rising prices. What can they do to keep prices rising after they buy? Attract more buyers! That’s why I’ve described the Chinese surge as an unintentional, crowd-sourced pyramid scheme. Sooner or later, that house of cards always collapses.
Much of the rapid appreciation we saw in LLLL.com CHIPs during 2015 was driven by buyers who saw fast growth and wanted to get in on the action, riding the price spike while it lasted. That feeding frenzy, fueled by lots of publicity and buzz (as well as some outright hype), caused the rate of appreciation to accelerate.
As a result of that unsustainable rate of acceleration, we’d expect prices to overshoot real value … like a bicycle that goes fast enough to jump off a bump, go airborne, and reach a high peak. We had a few months of hang time. But what goes up must come down.
These domains do have “intrinsic” value, based on usage and end-user budgets. But few traders
in this sector were buying based on that. They weren’t buying at wholesale prices tuned to the probability of retail end-user flips. Those wholesale prices were exceeded quite awhile ago. Arguably, even retail end-user prices were surpassed. End user behavior in 2016 is pretty much what it was in 2014.
Instead of “intinsic” usage-based value, the focus has been an “arbitrary” value. As tokens, domains can trade at $50 or $500,000 – whatever. As long as a large number of people agree that the “currency” is worth that much. Trouble is, this “token market” is unregulated. People are printing more and more bills in new TLDs. 140,000 .SITE domains in a single day – mostly 6Ns and CHIPs. Similar behavior in .RED, .PET, .XYZ, etc. Anything will do. Scarcity is an illusion because there is always more. And the absurd hope is that all these bills, no matter how many we print, will ALL go up and up in purchasing power!
Right now, Chinese speculators see that the earlier categories have been declining for 3+ months. Since their primary interest hasn’t been the actual stuff they’re buying but (rather) chasing high growth rates, they are fleeing those earlier asset classes and gambling in new areas – mainly at $1 or less per domain.
The goal is to replicate the phenomenon of the 2015 surge somewhere else, since the earlier categories are used up. They’re too far along in a boom/bust cycle or (if you prefer) too satured, too “mature” for high rates of appreciation. But in 5N .PET domains, a person might still hope to flip for 10x or 100x profit.
Facing this, LLLL.com CHIPs are unlikely to grow as they did in 2015. They’ll probably continue to decline before leveling off. If there’s a panic selloff and prices go dow fast, then the category will undershoot real value temporarily. That’s the time to buy if you’re a buyer (which I’m not). My guess is that this bubble will see a slow deflation lasting a year rather than a sudden balloon pop. Wherever prices level off, prices will be higher than they were before the surge.
Classic underdamped system on the way up. But I think it’s overdamped on the way down. Google those terms if you want to see the graphs. My prediction has remained unchanged since September of 2015. Plenty of people told me then (while prices were rising) that I’m clueless. Maybe I’m wrong. But I think CHIPs have farther to fall.